1. The internet is a ponziconomy. The meme industry is a subprime bubble.

    Once, publishers paid people to write stuff that mattered. Now, they pay people to create memes. Once, publishers invested in "content"--stories, pictures, essays, journalism, poetry, and much, much, more. Once, publishers paid young people, so they could earn a living learning and practicing these endeavours; already, now, they pay people to create slideshows and animated gifs; in the not too distant future, they will pay young people to use skills that could and should be better used elsewhere--3D modelling, CGI, storytelling, math, physics, design, etc--to create Tube Videos. Now, the only viable mass-market business model is to invest in faked videos that are meant to "go viral".

    How do they go viral? By tapping our lowest and least controllable instincts. they titillate us, they shock us, they produce in us the warm fuzzy glow of sentimentality. They jolt us; we click. Together, we're not better--we're worse; a little duller, stupider, sadder, lonelier. This isn't "content", in any meaningful sense of the word. It's more like "emptent"--stuff that fills us up, only to leave us empty.

    There is no redeeming social or human value in the commercial production of memes; in the emptent industry. While one can argue that kids creating memes for their own fun is educative, radical, rebeliious, and constructive, no such argument can be advanced for the meme industrial complex. Viral videos may make us giggle; but you can't spend a worthwhile life giggling at dancing babies. Nor can you build a thriving economy on young people putting their educations to use making...viral videos; for the simple reason that said videos create no real net gain for anyone (like for example, subprime debt); those skills should, if an economy is to thrive, be put to actually productive uses.

    Commercial memes aren't and will never be art. Yet, nor are they "entertainment". They're not even schlock that one day becomes art. They're not journalism or photography--and they're definitely not novels, stories, or photoessays. They tell no moral or ethical story; they are nihilistic constructions empty of meaning. They're lullabies for zombies. 

    The internet is a ponziconomy. The meme industry is a roadside bomb of a subprime bubble. The future of the ponziconomy is putting to sleep what is great and true in each and every one of us. Don't buy in.

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  2. Today, I remarked on Twitter: The Democrats' biggest Achilles Heel is that they're as closed to fundamentally big new ideas as the GOP is. Alex asked me, in response, don't these count as new ideas? It's a very sharp question.

    So here's my answer. Yes--and no. Let me be clear. I'm 100% for science and technology--and especially for basic research. I think it's crucial, vital, irreplaceable, and totally awesome.

    But--here's the but. I don't mean any of the technological innovations above when I say "big new ideas". What do I mean? Well, consider a great and quintessentially American Big New Idea: basic research itself as a public good, hence eminently worthy of government funding, pioneered in the post-war era. Big New Ideas--great political and social innovations, more specifically institutional innovations--like that are in notably short supply in America today.

    Let me explain, via a counterfactual. Imagine that I pioneer a wondrous nanomaterials startup that offers everyone a blindingly awesome new technology. What's likely to happen, without institutional innovation--without better building blocks for markets, corporations, and economies, in this case?

    Well, the first thing that's likely to happen is...nothing. Wall St and Sand Hill Rd (aka the venture capital community) probably won't bat an eyelid at my startup, choosing, instead, to do what they've been doing for the last decade or so: allocating capital to Groupon, Zynga, and Facebook.

    But let's assume, for the sake of argument, that by some miracle of virtue, that they do invest in my awesome nanomaterials startup. What happens next? Well, without political innovation, I'll get rich, and my backers will get rich--but the middle class is likely to continue it's long, slow slide into oblivion. The benefits of technological innovation, in other words, without institutional innovation, are likely to remain hyperconcentrated at the top.

    Think I'm kidding? See the chart below, from @profsufi. Over the last few decades, we've had plenty of technological innovation--but what they haven't done is benefit people at the median. It's a kind of trickle-down thinking to think that, by itself, technology equals prosperity.

    Please don't get me wrong. I don't think we need less big tech ideas--I think we need more and better. But to get the most out of them for people and society, we need Big Institutional Ideas. Tech and institutions are complements. Just as the industrial revolution's steam engines and factories needed corporations and capital markets to get the most out of them, so the eudaimonic revolution's radical technologies will need equally radical new institutions to bring forth their maximum, most disruptive potential.

    Hence, if you ask me: we've never needed Big New Ideas--transformative ideas about how to organize the economy, society, and polity--more. Like what? Like reinventing GDP. Like redesigning democracy. Like reimagining corporations. Like rebooting "work". Like revolutionizing our conception of what prosperity is and why it matters.

    Without them, though GDP may "recover", the real economy will probably continue to stagnate. So the challenge for tomorrow isn't just about technology, but about what we can do with technology to create real, enduring, meaningful human value; the unmet challenge for tomorrow is about Big Ideas for better institutions. Or, if you like, institutions are the circuit boards of prosperity.

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  3. I know we're not really allowed to think subtly in the great gladiatorial arena of the American national discussion. But, maybe, just maybe, both "sides" in the structural vs cyclical debate are right--and wrong.

    Let me put it this way.

    I'd bet that our immediate unemployment problem is, indeed, "cyclical"--and can be ameliorated, to some extent, with more, orthodox, stimulus.

    But I'd also bet that a panoply of other problems--stagnant median incomes, declining net wealth, underemployment, corporate cash-stockpiling, financial malinvestment and misallocation by the capital markets, to name just a few--aren't cyclical. They're structural, if only for the simple reason that most are decades-long trends, not the stuff of yesteryear.

    I'd say there's a tradeoff between the two--a kind of dilemma of political economy. Sure, you can throw money at failing institutions, to protect failed incumbents and create near-term "jobs"--but unless you want an economy of service McJobs, while propping up yesterday's oligopolies and monopolies, it's probably not the greatest investment in the world. Conversely, it's difficult to simply twiddle thumbs and let a tide of human misery--human potential foregone--sweep the advanced world.

    So here's how I'd frame the challenge. Institutional is how we fix structural and cyclical.

    If we accept that unemployment is cyclical, then the crucial question is this: will a stimulus package (or whatever) exert an opportunity cost--will it further entrench already failing institutions? Can we design one not to? Can we, better yet, design one to tackle the structural problems above at the same time, escaping the tradeoff? I think we can--and that it will involve investing in better institutions, not just rescuing yesterday's, at the expense of tomorrow's.

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  4. Here are some curious facts about the state of America's economy.

    1. Job "growth" is (in a simple, literal sense) outstripping economic growth. That is, jobs are being created at a faster rate than the dollar value of output is rising. That is, we're employing more people to make less stuff that's not worth as much (as we were before).
    2. 93% of income gains in this recovery have been captured by the top 1%. Speaks for itself.
    3. The median duration of unemployment is 40 weeks. It's effectively doubled from 20 in 2005.
    4. The unemployment rate for youth is 18% and still climbing.
    5. Median earnings are stuck at around $300 per week--where they have been since the 1970s.
    6. The ratio of non-performing loans to total loans has risen from 1% to about 5% since the peak of the bubble. In case it's not obvious, for a bubble this historic, that's a strikingly low figure.
    7. The total capitalization of the equity markets is now approaching 130% of GDP. It peaked at 140% of GDP in 2007.

    What does this little collection of facts suggest to you? Let me connect some of the dots. Labour markets are struggling--what jobs they can seem to create offer, as they have for the last several decades--zero real income growth at the median. But financial markets are booming--not only have banks not had to write off loans to the extent that reflects the degree of wealth destroyed and foregone in the real economy, but because they haven't (and hence have fictional capital to "invest"), stock markets are approaching pre-crisis peaks.

    Here's my suggestion. What we've done, very effectively, is begin to "recover". Not just for better, but perhaps for worse. We've resurrected yesterday's Ponziconomy, ligature by ligature. The same toxic dynamics that plagued the corpus last time are very much present, because we've done little to eradicate the disease. We've dug the body up, and shocked it back into life. But it's the same body--not a better vessel for life.

    Hence, if people ask: "is this a recovery?", the answer's probably "yes". The industrial age economy is recovering--and so are all it's attendant vicious circles and shortcomings, which are likely to intensify. What's it's not is a transformation to an economy institutionally, structurally, or functionally fit for the 21st century--one characterized by broadly shared prosperity that matters in human terms.

    That's not to say that recovery's inherently bad. Just to distinguish what I think many have it confused with. Digging up Frankenstein's zombified corpse is a way to eke the last bits out of a body, sure--but you probably shouldn't confuse it with healthy living.

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  5. So here's a question or two. Is it possible for a "recovery" to coincide with institutional failure? If it is, does a "recovery" have much meaning?

    In simpler terms, is recovery always an economic "good", that one should desire, prioritize, want, laud, celebrate, etc?

    First, let's be precise. A "recovery" simply means GDP growth.

    So: is it possible for GDP to grow, even as institutions stumble, falter and fail? Or does the growth of GDP always reflect "working" institutions?

    I've discussed at length the reality of what I've termed "thin value"--value that's merely transferred from one party to the next, instead of authentically created anew. Consider a related concept, Daron Acemoglu's position, neatly outlined in his new book, Why Nations Fail: that extractive institutions are the engines of national decline--institutions that extract value from society, instead of creating it.

    Now, extractive institutions, are, of course, failing institutions. What's their effect on "growth"? They, too, can yield "growth" (for a while). If for example, a lobbying industry is reasonably efficient at extracting value from, for example, corporations, growth will result. If, for example, an education industry is reasonably effective at burdening students with effectively unpayable debt, growth will result. If more McJobs are created this year than last--and people take them because there are few alternatives, "growth" will result". It won't be high quality growth--built to last, endure, and multiply. But it'll look, for a brief enough while, like a recovery.

    Put more simply, recovery can equal failure if the broader imperative isn't merely propping up broken institutions, not merely recovering them--but escaping and reinventing them.

    So, sure: it's (eminently) possible for "recovery" to coincide with institutional failure. In fact--and here's my point--if all you're looking at is the numbers, sans the deeper quality of institutions, you might just mistake a "recovery" for renewed prosperity.

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  6. Here's the big question everyone's asking. Is this a "real" recovery? To what extent is this "recovery" likely to restore prosperity to America--and beyond?

    Mostly, proponents of recovery rest their case on a few months of solid "jobs" growth. And sure, (the social construct known as) "the economy"has been adding "jobs" for the last several months.

    But for this recovery to be a meaningful recovery--instead of a transition to what I've termed neofeudalism, a political order bereft of meaningful prosperity, where the substantive rights and responsibilities of self-governance have been traded for (Acemoglu's) institutional extractivism--I'd say a few conditions have to hold.

    1. The jobs that are created must be at a bare minimum not McJobs.
    2. New jobs must "pay" at least as much or more than the jobs that have been destroyed.
    3. The income gains that accrue to new jobs must be sustainable.
    4. New jobs must be concentrated in areas of the economy that reflect a eudaimonic structural transformation (high value services, green products, etc)

    Why the conditions above? Without them, jobs might be created--but they might be of such low quality that they reflect the entrenchment of institutional failure, instead of the reality of institutional transformation.

    So, which way do "the numbers" suggest we're heading? Consider the two biggest gainers over the last month (which tend to have been among the biggest gainers over the last year or so--data's from, of course, here).

    First up: "temporary office services". You might think that's a good thing, since temp work is thought to precede "real" work. Except that "ladder of employment" hypothesis has failed to have been found to hold, time and time again. Conversely, there's almost no surer expression of neofeudal decline than the rise of "temp work": higher profit margins for firms, little security, fulfillment, meaning, purpose, or just plain income for people, diluted incentives for meaningful innovation and value creation all around. Indeed, the iconic image of American's economy stagnation is, at this point, the (twentysomething) "temp", overeducated, cubefarmed, and trapped.

    Second up: "food services and drinking places". If you think a solid recovery--in an economy where inequality's spiked, and left gaping holes in the structure of demand--can be built on an economy of waiters and McCashiers, then good luck to you on your voyage back into the Dark Ages.

    Sure, it's eminently possible to argue that things are getting better in America. But I'd suggest if you bother to take more than a cursory look beneath the numbers, the fact is: we still suffer from a malady--broken institutions, failing the challenge of real prosperity. And instead of curing the disease, we might just be turning it chronic.


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  7. NB--this is an archived version of the very first essay I wrote on the internets, in 2004 (i think :). i've republished it here in 2012 (dis)honor of SOPA.

    The New Economics of Music:
    File-Sharing and Double Moral Hazard

    Part 1: Why the Music Industry is (Really) Broken

    ‘The whole point of digital music is the risk-free grazing’ – Cory Doctorow

    Every major label 's setting up an iTunes these days. They're all, in the immortal words of Johnny Cash, 'born to lose, and destined to fail'. Why? The music industry doesn't understand the microeconomics of it's own business. If it did, it would see that it's business model is not just misguided, but broken- because, DRM or not, the implicit contract it signs with listeners is being broken in both directions.

    I reached this conclusion because, as I was scoping BoingBoing one day, I read Cory's statement, and it struck me as exactly right. For many people, digital music's more about risk than it is about music itself. Not legal risk - but transactional risk, the kind of risk you take when you buy a used car. Now, this statement has deep economic meaning. I'd like to explain why.

    Fundamentally, I'm going to argue that consumers download music, as much to derive extra value from getting something for free, as they do because they want insurance against buying something they didn't want in the first place. File-sharing is as much about risk-sharing as it is about the 'theft' of value. Technological changes have made this possible - but the way the business model of the music industry is at odds with the implicit contract it signs with listeners is what makes it probable.

    Here are the basic economics of the music industry: The major record labels assume market risk in exchange for value. They take on the risk of assuming search, development, and distribution costs, in exchange for uncertain profits.

    We can also look at this through the lens of contract theory. Contract theory says that principals contract agents to do things they're unable - for whatever reason - to do. In every such transaction, we can say that there are extra costs incurred. Economists call these costs agency costs.

    So we can say that labels are agents hired by music listeners - principals - to perform a function they don't have the time to do - find interesting and entertaining musical artists. The problem is that this simple transaction creates massive information asymmetries. There's no monitoring mechanism, so listeners can't see what the labels are doing; conversely, labels can't really tell what listeners' preferences are. Even worse, the principals can't influence the agent unless they can coordinate amongst themselves to do so.

    Now, in most real-world markets, information is an issue. Neither side in a transaction is perfectly well-informed about costs and benefits. But in most markets, prices are considered the central economic mechanism of information transmission, because they convey information about future benefits and future risks. This point is intuitive if we think about it: prices reflect the scarcity of a good. Think of the price of blue-chip stock, for example.

    But, partly because of massive buyer power (the influence the biggest retailers exert over the record labels), prices in the music business have long since failed to carry any pertinent information. Prices have become, if not fixed, as many suspect, certainly standardized. And this robs consumers of a vital means to gauge how much future value they derive and risk they take when purchasing different music goods. It also robs labels of the ability to really understand consumer preferences.

    So this forces listeners to rely even more on the record industry's - the agent's - choices. In this case, the principals are kind of blindly reliant on the agent - they have no mechanism to monitor the agent.

    So what if, under such a contract, the interests of the record labels - the agent - diverge from the interests of the listeners - the principal? What if, for business reasons, the labels are more interested in economies of scale, scope, and brand than providing music listeners with music they value?

    In an extreme case, the labels might begin to impose agency costs beyond the search costs the listeners are exchanging value for - making transactions with record labels provide negative value for listeners. Conversely, we can say that listeners might find it more efficient to take on their own search costs. And this is what's happened today. Many people are more happy to spend time searching for new music on the net than they are simply buying the goods the industry selects and promotes.

    It's traditionally argued that the web reduces search costs. But this argument helps explain a very curious phenomenon: why music today is one of the few markets in which people, are, curiously, willing to pay very high search costs.

    So the net actually begins to make it possible for people to pay higher search costs at all. They do so because they replace the agency costs imposed by the music industry - which provide them little value - with their own search costs, which do result in a transaction that provides them value. Before the web, people had little option but to pay the agency costs the music industry demanded.

    Economists have a name for problems like this: moral hazard. Moral hazard happens when the actions of an agent can be hidden from a principal, creating agency costs - because the agent is able to shirk, take additional risks, and generally not deliver on his end of the bargain. In this case, the moral hazard is that the record industry, because listeners can't monitor or influence it, can effectively shirk, and choose artists not based on listeners' preferences, but based on business efficiencies. This is effectively what the record industry has been doing - adding massive agency costs that replace the search value it is supposed to provide. It's compounded by the fact that music is an experience good, whose value is not directly knowable to buyers - another fact the music industry has been exploiting.

    The way to change the incentives implicit in such a moral hazard-creating contract is straightforward in economic terms - insurance. Insurance provides an incentive for the recording industry to choose only acts listeners value. At the same time, insurance means that consumers don't have to pay agency costs - the costs of the music industry selecting acts no one wants to hear.

    But doing so would create a double moral hazard. The second moral hazard is trickier: offering insurance to listeners provides listeners an opportunity to hide their actions from the recording industry. Listeners might take advantage of the insurance, and renege on buying music altogether. If the industry offered consumers the ability to simply return any music they didn't like, consumers might return all the music - even the music they did like, after having copied or consumed it.

    But this is exactly what the internet has done - offered music listeners a second moral hazard, in opposition to the first. The net offers a kind of gigantic way to renege on buying music goods produced under moral hazard, and completely eliminate the risk listeners take in buying such risky experience goods.

    The point is this: the net offers listeners insurance against the music industry itself. File-sharing isn't simply theft. Rather, file-sharing is risk-sharing - against an industry with the freedom to undertake hidden action in the extreme, and not live up to the contract it has written. Remember, the contract said that labels would assume the risk in exchange for dollars from listeners - so when moral hazard lets labels try and push risk to listeners, is it any surprise that listeners try and minimize it by parceling it out? In fact, we could go even further - saying that file-sharing is a way for principals to punish agents operating under extreme moral hazard, with the hope of bringing the agents incentives into line.

    In this sense, we can see that the music industry has played a large part in creating it's own problems, which we can call a massive double moral hazard. Next time, we'll examine how it can begin to solve them.

    Go To: Part 2 - Fixing the Business Model

    The New Economics of Music:
    File-Sharing and Double Moral Hazard

    Part 2: Fixing the Business Model

    What we’ve discovered so far are two critical things: First, the implicit contract between the principals and the agents in the music market, far from creating the right incentives, in fact produces a moral hazard – because it doesn’t take into account problems in monitoring the record industry. Second, technology has allowed music listeners to take matter into their own hands, creating a double moral hazard.

    Does understanding this help solve the record industry’s problems? Yes – in a major way. If the record labels can’t resolve the information asymmetries that let it operate under extreme moral hazard, and that cause listeners to retaliate with their own moral hazard, it should do exactly what these economics suggest: provide listeners with insurance. Of course, it would be better if the industry could resolve these information asymmetries, but I’ll leave that for another time.

    How can the record industry offer insurance without creating a double moral hazard? The surest way is to offer a subscription service instead of charging for discrete bits of music. Otherwise, it might offer limited guarantees – the opportunity, for example, to sample any song in it’s catalogue an unlimited number of times, but to only download it once. It’s important to note that low quality 30-second snippets don’t really cut it – they most likely don’t provide enough information to ensure to consumers that the industry is doing it’s job.

    But the simplest way might be to actually offer insurance – just like the standard model of the insurance industry. That is, for a fee (the deductible), offer consumers the ability to sell their risk of buying music they don’t prefer. For example, users might pay $20 a year, for the ability to return a certain amount of music.

    Another way is to offer listeners a contingent contract. Contingent contracts are where payment is dependent on some property of a good, like quality. You sell a contingent contract every time you order from Domino’s: if it’s not there in 30 minutes, your pizza’s free. The points is that these contracts offer another form of insurance, by matching quality to price – and so create the incentive for agents that are also good for principals. Because they make up for quality slip-ups, contingent contracts help sell goods when quality is uncertain, by reducing risk. It’s difficult to see how this can apply to information goods like music – since the price is paid before the quality is discovered. But there are innovative ways to do so. For example, shipping companies offer rebates when they deliver late. Similarly, the music industry might offer rebates when the aggregate sales of a top singer’s latest album are less than expected.

    A third way is to offer multilateral contracts, which offer the potential for risk-sharing among listeners. Multilateral contracts are made by one party, with many parties – but, crucially, whose terms to any one consumer depend on the acceptance of the contract by other consumers. For instance, labels might offer downloads from a given artist at a discount – but only if enough people offer to buy the good. Alternatively, they might try a pricing scheme where the industry offers steeper discounts the more people offer to buy an artists’ goods. The point is that schemes like this make private information and expectations public, allowing people to pool and share their risk.

    All of these are essentially ways to let consumers hedge the extra risk they take selling a broken contract to agents they know are operating under conditions of extreme moral hazard. Right now, consumers only have one viable way to hedge that risk, and eliminate the moral hazard – by parceling it out, and sharing it with other listeners, via file-sharing.

    So we’ve helped explain three crucial things. First, why many music listeners feel so much antipathy to the music industry – because they understand the moral hazard and large agency costs implicit in the risky broken contract they’re being offered. Second, why many feel morally conflicted about file-sharing, but continue to do so anyways – because they have no other risk-mitigating mechanism. Third, crucially, what the music industry can do in the face of these kinds of contract dynamics to revolutionize it’s business model.

    Current Models

    We can now take a look at what’s wrong with the latest efforts to market music over the net. Immediately, we can see that the most successful business model over the net will utilize prices to convey information rather than price everything at exactly the same value, and crucially, provide a mechanism for consumers to hedge their music risk. Sadly, all the major new services provide none of these things. They’re essentially the same old business model, minus physical distribution costs. Not a surprise from an industry that’s more afraid of change than death.

    Itunes, for example, standardizes prices across most of its products – providing consumers no information about future value or risk. It also entirely ignores the role of the positive consumption externalities users produce, because it provides no mechanism to share playlists or file directories. Finally, and most importantly, the only mechanism that iTunes provides consumers to mitigate risk is 30 second sound samples. It’s unlikely that this is enough to eliminate the moral hazard labels operate under. But that’s besides the point: what it really means is that iTunes can be outcompeted easily by any service which provides everything iTunes does, as well as a more efficient risk-mitigation mechanism, such as more complete insurance, contingent contracts, or a limited and rights-protected file-sharing scheme.

    Whatever the mechanism the industry decides to help listeners hedge risk, it’s important to note that it should be one that makes strategic sense. There is one simple risk reduction mechanism that would be even more destructive to the industry than file-sharing, and that the industry should avoid at all costs: price competition. If prices drop low enough – singles cost $0.99 on iTunes – listeners’ risk effectively disappears. But so do industry margins and the industry’s business architecture. It would be more strategically effective to construct a mechanism that creates value by hedging risk, eliminating the double moral hazard – and one that the industry can then trade for additional profits.


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  8. I've been struck, recently, by the sheer thinness of our discourse about this Great Stagnation. On the news, in the papers, I consistently encounter the same underlying assumption--that "fixing" this crisis is a function of money. That the real problem is that Americans are growing financially poor (whether in the sense of a middle class collapse, or a coming "debt crisis"). And hence, that if we get fiscal and monetary policy "right"--if the right amounts of money flow into the right buckets--prosperity will as if by a dark magic, resume it's upwards course towards the stars.

    I couldn't disagree more. I think this crisis isn't just about money, credit, or debt. I think it's about why they're created, and whether they matter in human terms.

    So let's do a tiny thought experiment. Let\s assume we take the entire globe's income ($60 trillionish), and distribute it to the total number of households in America (112 million or so)--giving every household in America about $535,000. And that we do so until the rest of the world starves to death; giving Americans, while it lasts, a basic income of (the equivalent of) about $500k per year.

    Further, assume that it's "real" money--not freshly digitally minted by the central bank, but extant capital that flows into the American capital account (invent whatever reason you like, from an alien invasion to a viral outbreak of mass global generosity).

    What happens next? Have we "fixed" the problem? Well, it depends. If Americans then proceed to hit the mall, fill their coffers with lowest-common-denominator faux-designer junk, buy several SUVs, a membership to the VIP room at an ultra-trendy nightclub or five, and a McMansion--well, then, in a few short years, they're likely to be right back to square one: broke and jobless. For the simple reason that the above don't create much more than McJobs and capital flowing upwards, from the collapsing middle to the super-rich. Worse, because they haven't invested in public goods, they're likely still to be absent the basic safety nets of health, life, and unemployment insurance, not to mention working infrastructure. If, in short, people choose the post-modern American dream of opulence, this crisis will recreate itself--forever.

    Here's my point. The financial determinists aren't just mistaken--they're mistaken to the point of a kind of naivete. Money alone cannot and will not "fix" this great crisis. Instead, it demands a great transformation of our preferences--not just money, but doing the right stuff with money: the stuff of a Tocquevillean "self interest properly understood": fundamentally smarter, wiser, fairer, more humane values.

    And that should be economics 101 (should the financial determinists care to remember it). For what we value shapes how we spend our money--whether we have molehills or mountains of it. What we value molds the investments we make in creating the future, or the malinvestments we make in merely recreating the faltering, anxiety-inducing present.

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  9. This chart from the ever-insightful Mike Konczal has been making the rounds lately. It's a Venn diagram of proposed "solutions" for dealing with the never-ending global economic crisis.

    I think it's just as interesting for what it doesn't say than for what it does say. Take a hard look at it for a second. See what's missing?

    Here's what's included: the hoary old reliable standbys of monetary and fiscal policy. Housing policy as a potential alternative, since this crisis was, superficially at least, manifested in a housing bubble. Guess what's not included--at all?

    Institutions (like I discuss here). The Venn diagram says: this crisis is about either money, budgets, or mortgages. In other words, while it might be severe, it's superficial--not a function of gigantic cracks in the economy's fundamental institutional building blocks, but more that those building blocks need a lick or two of paint. They're mostly short-term fixes for a standard (if significant) financial crisis--not long-term redesigns for badly cracked foundations.

    Here's my point. The institutional perspective is one of the 20th century's great economic breakthroughs. Further, we know that institutions are amongst the most powerful determinants of the trajectories of the wealth of nations. But that perspective isn't included in our national and international conversations about the crisis--still. We're now half a decade into a never-ending perma-crisis--and the idea that the rot might go deeper than still seems to be too tough to swallow.

    The thinking seems to be that the mechanics of finance will lift nations into prosperity once more--if we can just find the magic formula that unlocks the gears of the machine. But I don't think it's that simple: I think this crisis is here to stay because it points to a set of deeply broken institutions, whether corporations, governments, banks, schools, or healthcare systems--and the more money and budgets we throw at them, the more broken they'll get. I think what this crisis really says is: it's time to get serious about reimagining all the institutions above to yield benefits that matter disruptively in human terms; as engines for the pursuit of lives lived meaningfully well.

    So I'd add a fourth bubble to the Venn diagram, and call it institutions (see this post for more). In it, I'd put ideas including the following. That corporations as we know them are outdated relics of centuries gone by. That industrial age "profit" isn't an adequate foundation for 21st century economies. That real prosperity isn't ignited by optimizing for Gross Product. That "incentives" to do work that matters don't merely consist of more money, right now. That industrial output does not equal human outcomes. That a deep democracy isn't merely about choosing between lame and lamer.

    Want to know why we're stuck in this mess? I'd say that it might be, just a little bit, because we keep having the same old debate--forever. It's one that doesn't go deep enough--right down into the roots of what prosperity is, why we seek it, where it got lost, and what it means now and in the future. By now, I'd bet, we all know there's something seriously, fatally wrong with the ways we live, work, and play--and I'd suggest we're going to have to get lethally seriously about reinventing them.

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  10. Consider a shocking statistic: over the last four years, median incomes in America have fallen 9.8%. Since the beginning of the so-called recovery, two years ago, median incomes have fallen 6.7%.

    This is, to the orthodoxy, seriously surprising--and alarming. The tired old bag of tricks has been emptied--and nothing's worked. So pardon me for a moment--but let's get real.

    There's no recovery because this is not a recession. This is the cusp of an historic, generational transformation.

    Let me explain. America faces a seemingly never-ending recession. What's the cause? Banks still weighed down by yesterday's bad bets--and the conventional wisdom if that if we can fix them, and then gently prime the economy's pump, then the engine will spark back into life. 

    But there's a deeper problem: decades of real stagnation. As incomes stagnated, people assumed mounting levels of debt. The flipside of household incomes stagnating is that economic gains were captured largely by corporations and banks (hence, skyrocketing corporate profits). 

    The question, then, is this: what drove this vicious circle? In large part, the preferences of Americans themselves--preferences for opulence: more mass-produced self-destructive toxic junk. Yet, the flipside of opulence was to vaporize jobs, incomes gains, real wealth--and that's just at a naive financial level. At a deeper level, opulence shatters the incentives to invest in the stuff of enduring, authentic worth--and instead, pack an economy to the gills full of big-box stores, lowest-common-denominator faux-luxe "designer" stuff, and McJobs.

    So here's how I'd put it. The roots of this crisis are to be found here: over the last several decades, generations of Americans chose not to live meaningfully well in the first place--until we've ended up with a bad equilibrium where living well seems out of the question for most. 

    Let me draw a bigger conclusion. Societies that don't choose to live meaningfully well face a series of vicious circles. Stagnating incomes lead to liquidity traps lead to stagnating incomes. Consumption externalities lead to malincentives lead to consumption externalities. Malincentives lead to malinvestment lead to malincentives. 

    This dynamic equilibrium is written into the daily rituals of the modern American nightmare. Sprawl, congestion, dumbification, unemployment, impoverishment. It's not just in the malls, warehouses, banks, and trading floors--it is the malls, warehouses, banks, and trading floors. 

    Hence, I'd suggest, this crisis isn't going to be solved by half-measures and baby steps. Instead, it's going to demand unravelling the toxic equilibrium above. And that, in turn, is going to require nothing less than a eudaimonic transformation--a radical reimagining of the way America lives, works, and plays. To work, play, and live not merely harder--but meaningfully, authentically, lastingly better.

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