Umair Haque. Eudaimonics. Redesigning Global Prosperity.

The Great Devolution

2012-03-18T09:57:00.003-07:00

Let me say a few things that you're not allowed to say, but that I think should be said. Here's what I'd say the political economy of America looks like at the moment.

Faced with an historic crisis, instead of choosing to craft institutions fit for the future, America's traded political freedom for short-term economic growth.

Think I'm kidding? Here's a tiny list of the basic rights that Americans have ceded (or been forced to cede, depending on your perspective) for a "recovery":

1. Habeas corpus, the foundational cornerstone of an enlightened polity. Today, any American can be extra-judicially detained and executed by fiat. We often worry about "fiat money"--what about fiat life? Welcome: it's a reality.
2. Free speech. When corporate "people" have broadly equivalent rights of speech to human people, it should be patently obvious that humans have diluted, second-tier, limited rights to free speech. Corporations, of course, have resources and capabilities that human people don't--hence, they have louder, stronger, more persistent voices.
3. Public assembly. At Zuccotti Park, hundreds of demonstrators are met by hundreds of policemen, dozens of vehicles, and tens of choppers. To demonstrate in any major American city today is essentially a quasi-crime, and by raising the costs of dissent, it's been effectively stifled.

I could go on, and broaden the scope of my argument. But perhaps you begin to see the contours of my point. It's this.

A society that trades "growth" for the most basic of freedoms is likely to end up with neither. Unless you believe habeas corpus is worth a few billion dollars in marginal "output"--instead of being literally priceless--America's probably made a trade that profits society little. Whom it does profit, of course, are those to whom the gains in output are already flowing to an almost absurd degree: 93% of gains in recovery have been captured by the top 1%.

This isn't just a recipe for institutional failure. This is institutional failure. You're watching it in real-time. If the question is: "how do institutions fail?", then one answer is "when they're systematically deconstructed to extract wealth". I'd say that history suggests: trading political freedom for near-term "growth" is among the surest paths to severe, irreversible decline. It tends to lead not merely to "big government", but to states captured by narrow factions unnaccountable to--and unanswerable to--any broader conception of a polity, working hand-in-hand to loot a society of wealth. That's called, of course, "neofeudalism".

Real human prosperity that matters, multiplies, endures? It's so far off this radar screen it might as well be on another planet.

We're not just back to square one. Institutionally, we're devolving--heading deep into the negative horizon.

Frankenstein vs Dracula 2012

2012-03-17T18:29:00.000-07:00

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.

Can Recovery Equal Failure?

2012-03-13T12:24:00.002-07:00

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.

How's Our Economy Really Doing? A Betterness Report Card

2012-03-13T11:34:00.001-07:00

How's the economy really doing? In Betterness, I offer a five point agenda for redesigning the global economy, from the institutional ground up. Hence, since many of you have asked me to discuss it more, I thought I'd begin a semi-regular little report card (hopefully monthly), based on that agenda (and this, of course, is the inaugural post).

So how are we (in this case, America) doing so far?

1. Reimagine wealth. By building a national balance sheet. My first suggestion is that we complement GDP, an income statement, with a balance sheet, that measures our real, eudaimonic wealth. Unfortunately, so far, we haven't even begun discussing building one. Grade: F.
2. Recalibrate human potential. To evoke more (and higher) human potential. The next point in my agenda is measuring the real wealth that institutions create. This means, for example, reimagining "profit" and "loss"; and building complementary, more accurate indicators of real human benefit. How are we doing on this score? We're making little progress: while there are efforts to build "alternative" economic indicators, they're just that: sidelined, marginalized, and as a result, often less than rigorous or powerful. Grade: F.
3. Redefine mattering. By reinventing corporations and other institutional forms. Yesterday's institutional forms are a little like straitjackets: they prevent tomorrow's entrepreneurs from exploring more authentically productive possibilities. Here, we're finally beginning to make a tiny bit of progress, with more states passing B-Corp legislation, for example. Grade: D.
4. Revolutionize "work". By rewiring the organizational brain. In Betterness, I suggest that institutions shift from vision, mission, strategy, and objectives to ambition, intention, constraints, and imperatives--a new system of organizational building blocks ready-built for the pursuit eudaimonia. Here, we're beginning to see a bit of momentum: some of the economy's largest organizations are beginning to develop what I'd call, if not full blown ambitions and intentions, then at least primordial versions. A simple example is Pepsi's new "purpose" (a "healthier future", and yes, you can and should be skeptical about that). Grade: D.
5. Reboot life. None of institutional changes above can fully hold without more sophisticated expectations and preferences from people. A better economy can't be built when all everyone demands is the same old self-destructive industrial age junk. Hence, my last suggestion is that a bellwether sign of institutional change is whether people have developed post-consumer preferences: whether they begin to understand the consequences to themselves, society, and the future of their own decisions as economic agents today. Here, we're doing poorly, but not totally flunking: people are beginning to develop more nuanced preferences, considering, for example, externalities. Grade: D.

If you think the economy is money, machines, and "human resources", fruitfully "employed" to churn out more, bigger, cheaper, faster, now--then, sure, we're in a kind of "recovery". But if you think that an "economy" is about real human prosperity, that endures, multiplies, and matters--well, then we've got a long way to go.

My suggestion is this: while you might not fully endorse my agenda, until we've begun the process of redesigning at least the categories of institutions I discuss, this "recovery" will be largely illusory--just like it is right now, where many are trying to understand why this is an empty recovery, where jobs are picking up, but GDP isn't. Worse, sans institutional redesign, said recovery's likely to be fragile and volatile, prone to further collapse and crisis (because the same old institutions are already misallocating capital in much the same ways as they did yesteryear).

That's the bad news--summarized in my little report card that, if your seventh grader were to bring it home, would probably earn them a little bit of an intervention. The good news is: we're finally beginning to take the first small but decisive steps on the journey.

Recovery or Devolution?

2012-03-09T08:26:00.001-08:00

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.

The New Economics of Music

2012-01-18T09:33:00.000-08:00

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.

The Neofeudal Degeneration

2011-11-24T11:17:00.001-08:00

Welcome to the crisis that never ends. Here's what I've suggested on Twitter. Our economic problems are really political problems. But our political problems are really cultural problems.

To begin explaining what I mean by that, consider the following. If, as I've argued following the above, we're on a trajectory that's collapsing towards "neofeudalism", what does it look and feel like?

I'd say it has five key characteristics:

Neoserfdom. Here's the first aspect of neoserfdom. In a neofeudal order, serfs pay tribute to be protected from harm. In a social contract, people invest collectively in public goods that offer real benefits. They're mirror images. We're arcing towards the former: tribute is paid to be protected from harm by institutions with the credibility and power to inflict it, whether banks, corporations, or governments. The simplest example of tribute is the shifting of bailout costs onto the public balance sheet--as are the monopoly rents that corporations earn by virtue of their size, privilege, and structure. The second aspect of neoserfdom, of course, is insecurity: not having a personal balance sheet, but being perpetually and asymetrically indebted to (literally, in soft and hard debt to) those with assets--not by virtue of an economic exchange, but purely by accident of birth, class, or social position.
Output fetishism. The point of neoserfdom, of course, is to maximize output. The axis around which a feudal economy spun was surplus (grain, gold, etc)--channeled upwards, gathered at the very top, often literally to a single family. In a neofeudal order, that simple surplus fetishism is replaced by output fetishism--you're in hock so you can produce (and acquire) industrial output. Think Black Friday, forever.
Kleptarchy. In a neofeudal order, governance as we know it isn't. A combination of kleptocracy ("rule of thieves"), where elites loot states, and oligarchy, where the looting of states sustains elites, replaces democracy (or even American quasi-democracy). The point of neoserfdom isn't merely to entrench the gains of kleptocrats, who subvert the institutions of the common good not merely for personal gain, but to structurally alter the fabric of wealth, income, opportunity, and capability, eviscerating the concept of society.
Patronage. In a neofeudal polity, patronage replaces meritocracy (etc). "Success" for an organization, coalition, or person is to become a client of a powerful patron, pledging your services (soft and hard, informal and formal), in perpetual alignment with the patron's interests. This is the story of Congress, for example, pledging allegiance to banks, showering them with bailouts and guarantees, not merely unable to--but incapable of--reforming them.
Cronyism. There are no markets in a neofeudal order--there are tiny, closed, exclusive networks of patrons, directing the flow of a once-society's set of resources. As such, "competition" doesn't really exist; just the marketing of competition; and all the attendant flaws of a lack of competition are produced (stagnation, unnovation, monopoly) The reverse is also true: instead of institutionalized redistribution (think basic safety nets), transfers in a neofeudal order depend on the whims of the kleptarchs. Bill Gates made billions as a textbook monopolist, eviscerating an entire industry for decades--and now, he's showering that money on "good causes". Sound familiar? It should, it's the role the church often plays in a classic feudal order. Yet, if we had a working order, the cycle above would have been broken from the beginning--no monopoly, more efficient distribution, legitimized social choice directing it (instead of Bill Gates' preferences).

I'll discuss later what the evolution of a neofedual order might look like in human terms (though I'm sure you can guess it boils down to something like "pretty gross"). For now, chew on the above, and let me if you'd add or subtract stuff.

Why Money Won't End the Great Stagnation

2011-10-24T10:07:00.000-07:00

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 childish 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.

The Missing Link

2011-10-13T12:45:00.000-07:00

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.

Reimagining Debt

2011-10-12T09:38:00.000-07:00

As the metamovement grows, there's been a great deal of talk about a debt "jubilee". From many corners, calls for one are gathering momentum. But is it as worthy an idea as it sounds?

Here's my suggestion: a jubilee isn't nearly enough. It's a half-measure--one that that probably won't go the distance, might just backfire, and leave nations worse off than before. Instead, I'd suggest: if it's an economy fit for 21st century prosperity you want to build, it's wiser, more promising, and more disruptive to think about transforming the idea of debt itself.

Let me explain.

Let's call a "jubilee", first of all, a mass consumer structured default. It's unrealistic to assume that the debts would be forgiven in full--and in an unstructured way; that would cause more harm than good, leaving an already broken financial system in a state of thermonuclear implosion.

Here's why it's not enough. Imagine, for a moment, that a default does take place--and a generation's debts are wiped out by, say, fifty percent. What happens next? Well, not much--except even harder, fiercer stagnation. The foregone debt will wreck corporate and financial balance sheets, and require the banking system to be recapitalized (again). Who's going to foot the bill? It's likely that the average person will--but not before a collapsing economy turns a stagnation into a depression, mass layoffs erupt, unemployment spikes, and bankruptcies skyrocket.

If you think that's bad, here's the kicker. About a decade later, because there hasn't been any structural change (that alter incomes, interest rates, etc), debt loads are likely to be right back to where they were before. It's an experience that the world's poorest countries know all too well--serial default isn't followed up by institutional reform, and the result is...serial default. In effect, a "jubilee" passes the buck in much the same way bailouts do.

The global economy's problems are structural and institutional, lasting and stubbornly enduring--but a "jubilee" is a one-time fix. It's a little bit like treating anorexia by prescribing a guilt-free weekend at the all-you-can-eat buffet--a fix that's probably destined to fail in the long-run.

Here's a better approach. Turn the idea of debt upside down.

Consider a question. What's America's real debt crisis? It's not, as I argue in the Manifesto and in this post, "America's Deeper Debt Crisis" (stop right now and read it if you haven't, because this post will make a lot more sense) the debts consumers owe to banks. Rather, it's the debt banks and corporations owe to people--the unpaid harm they've done over generations to the natural world, communities, society, health, intelligence, stability, and more.

deep debt: a simple example

All the above has very real economic value--and it's been relentlessly, remorselessly trampled in the name of illusory, short-term profit to satisfy robotic shareholders and brain-dead boards. Economists, of course, call the above negative externalities--and our real debt crisis is about ever-mounting but unpaid externalities.

What's the long-run effect of these unpaid costs, these negative externalities, this deep debt? A shocking divergence between economic "growth", and real human outcomes--GDP grows, but median incomes fall. That's because, in effect, the so-called 99 percent are paying for these externalities with foregone opportunities, stagnant incomes, and McFutures.

Turning debt upside down won't freeze the economy dead in it's tracks--like a debt jubilee will. Crucially, it has the promise to reverse today's toxic pattern of capital flows. Instead of capital flowing from poor to rich, from human people to corporate people, from the powerless to the privileged, from the significant to the trivial, and from tomorrow to today, the possibility finally opens up for capital to flow in the reverse direction--and I'd say that's the route towards a more authentic prosperity. A jubilee might stop the capital flows above, for a very brief while--but it won't do much to reverse them. For a reversal to have a chance to ignite, nations also probably have to begin turing the tables on "debt" as we know it, think it, and live it.

A "jubilee" sounds radical--but the truth is that it's not nearly radical enough. If nothing less than the reinvention of prosperity is the quest we're on, my bet is: nothing less than turning the idea of debt upside down will do.

The Eudaimonic Transformation

2011-10-11T05:23:00.000-07:00

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.

Reimagining--Not Just Repairing--Banking

2011-10-10T13:48:00.000-07:00

Here's a curious fact. If you think about it for a second, we're witnessing the simultaneous failure of three very different banking systems.

The first is, of course, America's. While financial determinists might argue that banks are on the road to "repair"--and that's arguably true, if what you're focused on is financial mechanics, like balance sheets--in no economic sense is the banking system any closer to functioning than it was half a decade ago (consider any number of recent slightly crazy horror stories you've heard about malinvestment, malfeasance, or both).

The second is Europe's. Here, the problems are by now familiar. Europe's banks funnelled funds into "peripheral" nations, underweighting real risks--and when a revaluation of credit finally occurred, a sudden stop brought the eurozone to the brink of disaster.

The third is China's. A state directed and controlled banking system, which is essentially a conduit that channels household savings to national champions--the flipside of the reserve accumulation that subdues a tightly controlled exchange rate. It's blown a massive asset bubble, and, by definition, held down living standards while doing so.

Here's what all three have struggled (mightily) to do--and I'd argue, haven't done. Transform savings into what might be called meaningful investment. Allocate capital to it's most socially productive use. Monitor and enforce corporate hubris and excess. Set incentives for dynamic efficiency. In the limit, create authentic value.

Though the superficial paths to failure differ--the failures are strikingly similar. The deeper roots of those failures lives in the institutional DNA of banks. In other words, it's not a crisis "in" banks, but a crisis of banks.

Here's what's glaringly clear. Beyond merely recapitalizing (taxing, etc) banks, we're going to have to reinvent banking--institutionally. The (purely mechanical) steps we've taken so far are tiny, halting, and fundamentally insufficient--concerned solely with technicality, instead of substance--to craft financial systems fit for the future.

So here are a handful of principles I think might help us think bigger.

Purpose, not just profit. Banks should be social enterprises, tasked with delivering real benefits--not just shareholder value.
Radical transparency. Banks shouldn't be opaque swamps of disinformation--but providers of real-time info about which funds are going where, when, and why.
Punishment, not just reward. Bank execs should face real penalties for the consequences of their decisions.
Flexible, not fixed. Banks should a dynamic capital structure that reflexively reconfigures in the event of a crisis. Think bail-ins as a starting point and you begin to get the picture.
Failure, not success. The problem of too big to fail is, in actuality, a problem of too interconnected to fail: a problem of network centrality. Network centrality is often a telltale sign of market failure. Hence, a central network position should probably be dynamically de-subsidized (ie, guarantees removed). In the limit, radical decentralization might mean that a bank's "deposits" are distributed in the equivalent of escrow across members--allowing for micro-failure.

There are plenty more principles we might readily apply, but the real point is this. Banking as we know it is fast becoming a liability for nations. If it's a dynamic, resilient, vibrant economy capable of enduring, meaningful prosperity you wish to build--there's little worse way to go about it than to build a thriving financial sector. Hence, among the most urgent imperatives for national advantage today is reimagining banking--and though it might sound obvious, it's a journey few are even preparing for, let alone beginning.

Do We Know What it Means to Live Well?

2011-10-08T11:01:00.000-07:00

I'm struck by what you might call the perfunctory--almost summary--nature of much of what I read about "the economy". What strikes me about our conversations and narratives is, when you dip beyond the numbers and "facts", the equations and models, how flimsy and slight their foundations are. And on rickety moorings, that infinite numbers of sides "debate" doesn't make any "right"--or even righter, closer to meaning, relevance, and substance.

Our "debates" make a crucial assumption--perhaps a fatal omission: that we "know" how to live well. that we've discovered and mapped, charted and recorded, the territory of a life lived meaningfully well. The calamity, our great debates suggest, is a major one--but not a profound one: our vessel's sunk. The chore of the present is patching up the vessel--and failing that, rebuilding it. But the imperative remains the same: continuing the route plotted on the map--a route that takes us from industry to prosperity.

But can it be argued that the answer to a question that's fervently occupied history's greatest minds has been produced, without much ado--by us? Who produced it? Where is it written? What does it say? Is it the economists' assumption that industrial output equals prosperity? Is it the financial determinists' contention that money is a necessary prerequisite for industrial output? Is it the folkway that "working hard" and "playing hard" add up to the apex of human experience?

Our explanation's at once everywhere--and nowhere; at once written into the rites and rituals of our daily lives--but one whose blank emptiness is also searingly inscribed into them. It's in all the above--but while all the above define the terms of fortune, fortune fails to sum to a life that matters, resonates, counts, endures. Fortune is as much meaning's oppressor as it is it's liberator.

This set of beliefs we call an explanation isn't. It's a ghost; elusive, hidden, spectral, empty of substance. It's a ghost that's invoked by necessity; a ghost that's summoned by crisis; and a ghost that's exorcised by the crack of another boom--banished when it's no longer needed. Try as you might to capture it, it slips through the fingers.

Conversely, if we have explained the vital components of a good life, history will surely have laughable contempt for the fragility of our halting answer--it's been tried and been found wanting before. Empire after empire has reached through conquest after conquest for the triumphs of opulence--and all have not just fallen; all have been prone to the glitches and crashes inherent in it's calculus. Not merely injustice between people--but injustice within people; lives spent in frenzied pursuit of the trivially forgettable.

Every civilization reaches towards the sun, in an act of Icarian hubris. Our is this: to have assumed the explanation to the biggest question. What is it that constitutes a life lived meaningfully well? History scorns affluence, the present scorns "security", the future scorns plenitude--all these are self-evidently insufficient.

Our imaginations are asleep. We swim in the shallows. The question of a life well lived is among history's--and humanity's--most challenging, most fundamental, most profound. We've glanced at it--and written a half-literate sentence in the exam book--instead of a reasoned essay. A sentence that expresses the futile banality of a big-box store. It lacks nuance, complexion, insight, tone--let alone experience, understanding, sophistication, and discernment.

I dissent from this debate. My suggestion is that we don't have an adequate answer to the question of a life meaningfully well lived; that it's up to us to craft one that counts; and, further, that the thin, sometimes credulous assumptions that substitute for a reasoned, sophisticated answer are the looming roadblocks standing in the way of lives better lived.

We imagine we know what it is to live meaningfully well; and therein lies the incurable mistake. Distant history will forgive us for it--but it's posterity we'll have to answer to.

The Expendable Generation

2011-10-07T10:55:00.000-07:00

The cards on the velvet table. The hands have all been dealt. It's a flush of crossbones.

We're the expendable generation. We're already "lost". We're motherless children, a long way from home--orphaned by the human world, taken hostage by fate.

In the inescapable present, a trajectory's rising to the horizon. What we could have been will not be what we must be. Superficially, our earnings, incomes, and wealth will be diminished--not just past what we might have imagined, or what our parents might have imagined for us--but past what might have been.

Here's a sharper view. In the immutable calculus of sacrifice, we're burnt offerings. We're the last embers of the dying fire of an era that burned itself out in the furious worship of disposable, plastic idols. The damage that's been done can't be undone. We were born for a singular function, in predestination's empty design, and our function is this: to repay the debts and obligations of the past. Or, to put in human terms, to make good on plenitude not just squandered, but slashed and burned by savages and fools. Our duty is mutely foregoing opportunities to climb to the apex of our potential.

Welcome to paradise lost. Opulence sowed a bittersweet garden--and we reap the whirlwind. So the questions are these: how much can we bear? Can we bear the debts of the past without the certainty of the present? Can we bear the obligations of the present without the hope of a future? Can we bear a duty to the future without the endowments of the past?

They're forbidden questions; unspeakably indecent subjects. The cards say: the expendable generation are pack animals to be utilized until we break, interchangeable commodities worth the motive power of their sinews; already bonded to shoulder the burdens of yesterday--into an empty forever. We're superfluous and unwanted; accidents of history; born into the collapse of a myth of milk and honey. Our function is never to blink, to stay awake forever--who else will undream the dying dreams of glittering excess?

Our songs are the music of futility, nihilism, despair--not the music of love, beauty, and truth. Our books are sets of instructions--to help us execute our function without breaking and fracturing mentally, physically, socially, emotionally. Our lives aren't lived--they're programmed, compiled, scheduled, bulleted, recorded. Orphaned by the human world, adrift on the open ocean--sometimes we bump into each other, and see the terror and confusion of remorseless obligation in each others' eyes.

But function is not purpose, just as design is not construction. We're orphaned by history, renounced by fortune, condemned by exigency. But even a convict can choose.

Fate, above all, is to be fought. To be scorned, challenged--and conquered. Its empty eyes want to turn us to stone. But we're not done breathing--yet.

When the world maroons you, the only moral choice is to desert the world. When destiny strangles you, the only moral choice is to revolt.

The Zombieconomy and the Zombies

2011-10-07T02:19:00.000-07:00

Half a decade in--how are we doing in terms of this never-ending crisis? Are we around the corner? Are we in "the middle"?

Here's the simple fact: we haven't fixed much at all.

Banks are slightly less profitable, but finance is still the most lucrative industry in the economy.

Rewards are not flowing into other, more socially useful activities.

Corporations still chase shareholder value. Today's CEOs are largely yesterday's CEOs (or carbon copies thereof).

"Deleveraging" hasn't kicked in. Debt hasn't been rebalanced with equity; our economy's still structurally sick.

"Interest rates" no longer reflect what you might call a real cost of capital--cheap money flows into banks, but expensive money flows out (when flows trickle out, that is).

Corporations and banks have stockpiled cash to hedge against future meltdowns--telling us the disease hasn't left the system.

In both relative and absolute terms, the materially poor are (still) getting poorer, and the rich are getting richer--and should that sound naive to you, take a second to remember what "marginal productivity" means.

Hence, the real economy does not have the incentives to invest in 21st century opportunities, ideas, or people.

Hence, there's little to zero real discipline when it comes to checking excess and hubris (like Chelsea Clinton joining a major corporate board).

Hence, the opportunities finance is allocating capital to are all largely marginally socially worthless (faster, more opaque, or more convoluted "trading").

These are Very Big Problems. Advanced economies have had half a decade to begin patching them up, and they've done pretty much nothing. The structure of the institutional system remains not merely intact and preserved--but shored up and fortified.

The financial determinists--the people who think money will fix this crisis, because this crisis is just about a lack of money--are beginning to suggest the crisis will go away all by itself. And here's the most dangerous part--in a sense, they're right.

Perversely enough, because of all GDP's shortcomings, at some point, all the above might just jolt GDP back into action. Much the same way that Dr Frankenstein brought a monster to life. But it will be a Frankenstein GDP--one that "grows" as real human prosperity recedes and declines.

That's the bad (or, depending on your perspective, good) case. The just-about-average one is this: until the problems above are resolved, this is the no-future future. The US and the UK chug along like this--until they're simply out of steam, and end up, decades hence, either like Russia or Iran (take your pick).

There's no Iron Law that says economies must "recover" from historic maladies--in fact, some never do.

The Reality Manifesto

2011-10-06T12:59:00.000-07:00

You know the conventional wisdom. They've force-fed it to you every day of your life. They've taught it in schools, beamed it from towers, written it on buildings, and made sure you can recite it without blinking. They've probably even made you--at least a little bit--believe it.

Here's a secret the world doesn't want you to know. The conventional wisdom isn't just wrong--it was never right.

Work harder, feel emptier, buy more, grow poorer...work harder. Sound familiar?

If you want to live a meaningfully better life, you're going to have to choose to disobey. You're going to have to make the dangerous choice to dissent. From the dictates of a paradigm that's eating your humanity, nobility, decency, tranquility, and vitality alive--and zombifying you from the inside out.

You're going to have to get serious about one--or perhaps all--of the below.

Money is not a measure of enduring accomplishment.

Pursuing the paycheck first and last is a great way to spend your life unfulfilled and empty.

Lasting relationships aren't build by "networking'--but by caring.

If you want to "connect", you probably have to do what's more dangerous than merely swapping email addresses or biz cards--you have to relate.

Life is about people, not product. If you're spending 75% of your time on "product", you're not alive.

You are not the fundamental reason you are here. What, then, is the fundamental reason you are here?

Carefully toeing the line is a surefire path to mediocrity.

Compromising with the past never creates the future. It only recreates the past.

Awesomeness is self-fulfilling; first, you have to believe in awesome.

There are no second chances. Every second is an n-th order chance.

If you want to be inspired, try making a difference to those that need it most. You can't buy real inspiration off the shelf--you can only buy "inspiration-like products".

You have to stop buying into marketing's spin-cycle of self-loathing--"Feeling anxious? Buy this, now!!"--and start investing your time, energy, and imagination in stuff that matters.

If your society's going haywire, it's up to you to begin fixing it.

And above all: a life lived meaningfully well isn't denominated by digital friends, designer logos, or wads of paper notes. It's denominated by what you've lived, what it's worth to you, and what that's worth to humanity.

If you want to live meaningfully better, you're going to have start living heretically. You're going to have not just disbelieve the conventional wisdom--you're going to have to defy it.

Your first challenge is seeing through the empty, zombifying, nihilistic calculus of me-me-me opulence. But your second challenge is refuting it.

(What) We Can Do Better

2011-10-06T11:42:00.000-07:00

I know--and I'd bet, deep down, you do too--that we can do better.

We can do better than a financial system that predictably, consistently blows up the real economy.
We can do better than paying the folks that run it billions for being kind enough to demolish our futures.
We can do better than a "real" economy that doesn't lead to human prosperity.
We can do better than a polity that's more stagnant and gridlocked than the Politburo.
We can do better than than billions of person-hours of work sweating over incremental, humdrum updates to mass-made, disposable junk.
We can do better than secret panels that put people on "kill lists".
We can do better than shrugging our shoulders at a lost generation.
We can do better than a life sentence of mass long-term unemployment.
We can do better than (phew!) fixing mass unemployment with millions of McJobs.
We can do better than Chelsea Clinton joining the board of directors of a major, historic corporation.
We can do better than corruption so pervasive we're dismally resigned to it as business as usual.
We can do better than an omnipresent, inescapable financial fragility, economic anxiety, and social insecurity.
We can do better than a way of life whose inevitable consequence is deep, abiding personal self-loathing, depression, and trauma.
We can do better than the quick fix, the band-aid, the line drive.
We can do better than spending our lives in pursuit of the expedient, the transient, and the trivial.
We can do better than a chronic, systemic, desperate sense of alienation and meaninglessness.
We can do better than the lurid, invisible brutality of nihilism.

Life matters. People matter. The future matters. All three combined mold the lever with the might to move the immovable. Human potential: it matters.

There is more to authentic, enduring prosperity than profit, income, or output. Plenitude does not consist of paper chits and digital bits. The worth of an economy is not merely denominated by the material gains of the already spectacularly opulent.

These are the stakes. The stakes are not austerity, stimulus, or "easing". The stakes are not who we'll elect this year, that we didn't last year. The stakes are not what flavor of McJunk we'll buy instead.

The stakes are the way we live, work, and play--and how they will change discontinuously in response to the self-created plight of the present. The stakes are the institutions we buy into--with our money, time, energy, commitment, and imagination; the institutions we create, every day, with every tiny choice we make--and that which can be created.

The stakes have rarely been higher. How do I know we can do better? I lied. I don't.

See the challenge?

The Ultimate Super Duper Innovation Secret

2011-10-05T03:37:00.000-07:00

Here's a little parable. I've spent the last month in an undisclosed developing country that's so far behind the curve that I need a guard at my door. One day, I asked the guard: "what do you think of Apple?". My guard narrowed his eyes, furrowed his brow, and looked at me as if I were slightly stupid. "I've noticed," he said, "your iPhone and your iPad. You probably think they're great. But let me tell you a secret you probably don't know. There's a market down the road where I can buy an iPhone and a MacBook for less than a twentieth of the price you paid for them."

Slightly surprised, I asked him: "...Are they stolen?"

He looked at me with great sorrow and pity. "Stolen? They're brand new. The latest models from the newest Chinese factories. In fact, the Chinese iPhones and iPads can do things that the American ones don't. They connect to everything, they have better software, and they cost a fraction of the price. People like me look at your iPad and smile to ourselves, because we know, for once, we're getting the better deal."

Of course, my guard was talking about counterfeit iStuff. And while I'm sure you can certainly argue that real iStuff has more subtly usable software, more finely milled aluminum, more carefully thought out details--which you and I love it for--here's what's also true. My guard makes about $80 (US) per month. Asking him to spend $500 on iStuff is a little bit like asking the average American earning about $50k to spend $250k on a diamond encrusted timepiece worthy of a gangster or a zombie overlord investment banker: slightly unrealistic, probably futile, and totally unnecessary.

My guard and I live in different worlds. He wants the hypermodernity of iStuff--the whiz-bang of a tablet computer, the sleek lines of an iPhone--but he also wants it to fit into his world. He wants it to run "pirated" software (sorry, did I say "pirated"? I meant: "not monopolistic") that can help him translate between several different languages--not just that helps him surf the web faster. He wants it to help him accomplish his daily tasks--which I'd guess include dealing with nasty, venal bureaucrats, trying to save a little bit, and making sure his family hasn't been blown up; daily tasks which I'm pretty sure don't include asking Siri which high-end restaurant to check out tonight, or how to get home because he's dead drunk. And above all, he wants it not to break his less than titanic bank.

Here's a reality check. Fully 50% of the globe lives on less than $2.50 a day. My guard's at the bright end of that line. For them, iStuff--and the stuff of "innovation" more generally--isn't just an unaffordable luxury; but also irrelevant excess. To "them", the stuff of our lives, I'd guess, resembles something like the glittering debris of the wreckage of opulence--stuff to dodge as they're trying to stay afloat.

While it's certainly true that the merchants of iStuff can continue to depend on the vanity and insatiable appetites of the world's richest 20%, that's probably a recipe for destruction. For as Western prosperity collapses into the super-rich and the people formerly known as the middle class, it'll probably require making gold-plated super-special iStuff for the beastmasters of the universe--and for their peasants, stuff stripped down to the point of sharply diminishing returns. Hence, if my guard's tale is true, then the future of the purveyors of glamorous, wondrous iStuff looks a little bit like this: fiercer, tougher competition for fewer renminbi, rupiah, or rand flowing their way.

So here's my suggestion.

The ultimate innovation secret is this: stop looking for the ultimate innovation secret. Stop seeking a cleverer shortcut; stop breathlessly searching for the next magic pill. There's no super duper magic pill that will relieve you of the hard work of doing stuff that matters. That counts, resonates, endures--because it leads to lives lived meaningfully better. That makes a positive, lasting difference to a huge chunk (not just a tiny sliver) of humanity--because when you think about it, what my guard was really saying was this: that's the yardstick by which competitive success will be measured in the 21st century.

Let's admit it. For the last several decades, the hard truth is this: the chunk of humanity lucky enough to enjoy the privileges of education, money, and time hasn't bothered to toil over the above; the vast majority of their lives has been spent sweating over dreaming up slightly pointless, fairly tedious, mostly incremental updates to minor-league trinkets and toys that history will forget, and mean about as much to humanity as a pair of Jimmy Choos does to a goldfish.

Those days are ending faster than the economy churns out the latest, greatest update to yesterday's iStuff. Hence, the future of innovation probably doesn't begin by searching frenetically for yet another quick-fix super-duper secret formula for pursuing the trivial, humdrum, and banal with even greater ferocity. Instead, my bet is that the future of innovation begins by letting that dull, leaden past go, and getting lethally unstoppable when it comes to creating, imagining, making, building, and sharing the stuff of authentic worth instead.

Redesigning Politics for Real Prosperity

2011-10-04T06:08:00.000-07:00

Over the last few months, I've made many people very (very) angry on Twitter. Here's how (and here's an apology if you're one). I'll tweet something, and someone will ascribe a set of political beliefs to me ("Republican!! Democrat!!" etc)--and then retaliate violently. These are fruitless exchanges--not just because I haven't explained what my own politics are; but also for a deeper reason: when you think about it, the full spectrum of today's politics isn't working. It's failing miserably, utterly, and predictably.

Though we can certainly squabble about left versus right from here until kingdom come, doing so probably isn't going to do much in the way of rebooting prosperity. Instead, I'd argue that "left" versus "right" might at this point be something like the greatest marketing trick in modern history; an artificial distinction between poles that are more similar than they are different.

I believe that we need new political philosophies fit for the future. Yesterday's--visibly--are crumbling, falling apart, ruined. Take the two heavyweights of the last three decades or so. Neoconservatism? Fail. Neoliberalism? Fail. Let's go further afield. Orthodox "green" philosophies? Less of a fail, but if actual impact is what you want--still a fail.

Hence, I'd say many are left with a feeling of futility. Politics isn't worth pursuing because there's no party that's representative of your interests--not to mention the perception there's no party that hasn't tried, and failed, miserably at the tough slog of patching up prosperity's listing ship. There is no alternative--except apathy, resignation--and frustration. Right?

Wrong. There is an alternative, though it'll take work, wisdom, and wonder: crafting new political philosophies. So here's an example: a brief, rough sketch of mine.

On the hand, it's grounded in the fundamental conception of eudaimonia as the purpose of human organization. That's a deeply conservative position, perhaps even a hyper-conservative one--I'm not merely interested in "conserving" a constitution that's a couple of hundred years old, or the policies of a party that's a century old: I'm interested in "conserving" a much older, much more foundational, and much less modern conception of prosperity; one that I'd argue is the cornerstone of civilization.

At the same time, I believe that the bedrock of eudaimonia is choice; that without agency, the doors of human potential cannot be said to have been breached. That's a deeply liberal position--one founded on the idea that freedom is intrinsic to real prosperity, because it moors equality and consent in moral choice; not merely the notion that freedom's desirable because it gives people the room to experiment, adapt, and create stuff that has positive consequences.

So here we have a paradox: my perspective's an amalgam of "liberal" and "conservative", that stands awkwardly amidst both, fitting neatly into neither, jutting out from both sides, elbowing both in the ribs. I don't know what to call my little political philosophy just yet--but here's what's for sure: the "isms" of the present are spectacularly inadequate to describe my preferences. Neither "neoliberalism" nor "neoconservatism"--nor any other political philosophy under the sun today--encompasses or defines them. Nor should they--because I'm looking optimistically ahead to a more enduring prosperity, and the political philosophies of the past have already failed at that task.

We now live in a post-prosperity present. It's not just our polities that are broken--but our political philosophies, perhaps, that broke them. Hence, I'd say, if you look at the Metamovement in perspective--we might stand on the cusp of a new set of political philosophies for the 21st century. And I, for one, am hugely excited by that--it's awesome.

A Bill of 21st Century Rights

2011-10-03T12:41:00.000-07:00

What is the Metamovement here for? After all, there's been no shortage of criticism effectively saying: "It's aimless".

Let me make an observation. The Metamovement, it's often said, is "viral". I think, in fact, it's retroviral. The Metamovement--by definition, as a movement of movements, not a hierarchical, centralized, organized effort--has no singular aim. Though individual movements, like occupywallst, have "demands", the Metamovement as a global contagion epidemic of viral revolution has no simplistic, identifiable goal; no clean, gleaming objective.

Instead, I'd suggest: the Metamovement is a retrovirus. A virus infects a host to utilize its resources to reproduce; but a retrovirus inscribes itself into it's hosts' DNA, thereafter replicating within the DNA of the host-- a retrovirus is a gene delivery device. Like a retrovirus, the Metamovement has no transient "objective"--but is designed to irreversibly rewrite the calculus encoded in the DNA of industrial age institutions.

Let me explain, backwards forwards.

The calculus the Metamovement want to write anew is this: to turn wrongs into rights. Here, I mean wrongs in a specific sense--as the negation of rights to goods; wrongs are obligations to swallow "bads", like toxic debt, unemployment, and bailouts (and you should read this post before continuing, because you won't get the most out of this one otherwise).

To illustrate what I mean by "turning wrongs into rights", consider the America that almost was: in 1944, as many of you probably know, FDR proposed a "second bill of rights". Here's what he had to say:

"We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.”[2] People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed.Among these are:

The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.America's own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for all our citizens.For unless there is security here at home there cannot be lasting peace in the world.

Here's what I'm not suggesting: that FDR's proposed Second Bill of Rights is a blueprint for the future; that I necessarily agree with each and every one. What I am suggesting is this: the Metamovement's aim is to turn industrial age wrongs (remember, I mean this in a technical sense) into novel 21st century rights--authentic rights to the goods of a real human prosperity.

What's eerie about FDR's list above is how it seems to be the past haunting the present--for many of the rights he suggested are exactly those still being debated today. Freedom from unfair competition--especially from too-big-to-fail financial oligopolies? The right to adequate medical care? The right to a "good" education--not merely a costly indulgence? These are the fractious vicissitudes of present; the spectral face of the American Illusion, a celluloid dream that never was.

If you ask me, the above is a meagre beginning--and 21st century prosperity is going to demand getting even more radical--it's going to demand a Eudaimonic Bill of Rights. How about, for example, any or all of the below:

The right to a thriving environment.
The right not merely to "work"--but to do work that endures and elevates.
The right to be free not merely from monopoly--but from state guarantees and subsidies of rivals.
The right to be free from information pollution (read: Fox News misinforming viewers about basic facts).
The right to financial security and stability.
The right not to be taxed by the private sector, implicitly or explicitly.
The right to buy and sell at prices that reflect authentic, long-term value

All these are tiny examples of rights probably important if the goal is not merely to live--but to live meaningfully well; to live up to a higher apex of potential; to enjoy a life that matters, counts, endures, resonates. They're not the best or only ones--just a few tiny thoughts I scribbled down quickly. Here's my point.

I'd see the Metamovement less as something like a "revolution", in the orthodox sense, and more as a family of retroviruses: a decentralized, loosely coupled, not-quite-aware carriers of a lethal payload, aimed squarely at hacking the DNA of industrial age institutions, altering the logic of prosperity encoded within their inner structure. A retrovirus is a gene delivery vehicle; a being on the edge of life and not-quite-life whose purpose is to alter a host's DNA, become part of the host, and forever alter it's calculus.

If the Metamovement is an organism--not in the sense of life, but in the sense that it's not deterministic and mechanistic--then I'd say the reward which will trigger it's repose is something like the above; the institutionalization of a calculus that turns wrong into rights; a calculus that writes a Eudaimonic Bill of Rights to serve as the basis for a social contract for prosperity that matters in human terms. A retrovirus is designed not merely to disrupt but transform the governing logic of an organism; and that, I think, is the Metamovement. A successful retrovirus encodes it's genes into the hosts DNA--and I'd say that the Metamovement doesn't have an intentional "goal", but it does have a design--and that design is to carry the genes of human agency and moral choice (or, if you like, you can choose buzzwords like "horizontality", "leaderlessness", "openness", etc) straight into the molecular structure of industrial age institutions, and inscribe them there, luminously grafting possibility into their ossifying bones.

The Metamovement isn't a virus; it's a retrovirus. The host has been infected--but will the new genes be encoded into yesterday's brittle DNA? The next question is: what happens when the immune system kicks in?

Designing a 21st Century Social Contract

2011-10-02T06:11:00.000-07:00

How do we design social contracts fit for the future? What might it mean for a social contract to be fit for the future, given the plight of the present?

Let me distill as simply as I can.The world arcs toward eudaimonia.Rights have diverged from goods. As I discussed in the last post (read it, or else you won't fully get the rest of this one) wrongs compel, obligate, and limit people to consume and invest in bads.Sociopathic compacts are based on wrongs.Revolt is the inevitable endgame of a sociopathic compact.

Yet, revolt itself is the surface ripple of a deeper earthquake: a redoubled search for meaning, as the survivors climb out of the hissing, creaking ruins of opulence. They’ve survived the pyroclastic collapse of nihilism’s glittering, beckoning promise--and are left with a zombie bargain, a contract null and void, yet staggering on.

Where, then, does the rebuilding of a social contract fit for a meaningful future begin? I’d say it begins by turning the fatal, fatalistic illogic above upside down.21st century social contracts will be built on rediscovering the essence of the right. Their construction will be founded on rights—“rights” to authentic goods, not merely force-fed wrongs from bads. They will be eudaimonic bargains, converging towards lives meaningfully well lived, arcing past opulence, reaching through the horizon of possibility.

Here are three examples of eudaimonic bargains.

Denmark is the first country in the world to introduce a "fat tax". The fat tax is a right to more authentic goods—inducing healthier eating choices, incentivizing eudaimonic decisions. Why should society bear the human costs of” food-like products”; why should incentives diverge so nakedly from meaningful gains? It’s the calculus of anti-choice; the limitation of human agency at it’s rawest. While nations like America bicker over the trivial (should we dare to “tax the rich”?), Denmark’s reinventing a social contract fit for the future one tiny—but far from inconsequential—line at a time.

Mindbloom is a game that creates incentives to live better. In it, you plant a tree—and depending on the actions you take, your life tree blossoms into relationships, health, career gains, spirituality, and more. It’s a small example of the tiniest eudaimonic bargain—but perhaps the most meaningful kind: one that one’s present self makes with one’s future self.

The IMF has recently done a startling volte-face—and is now beginning to quietly, gently call for reduced inequality: “Over longer horizons, reduced inequality and sustained growth may be two sides of the same coin”. There are plenty of simple moves—education, basic income, and the like—nations can make to strike this titanic eudaimonic bargain; the point to note is that it is a deep—and vast—eudaimonic bargain; a stark contrast with yesteryear’s logic that relative poverty for many is merely the inevitable human price of economic fortune for a few.

These are far from the best examples, or the only examples—they’re just three I quickly jotted down. What’s for sure is that there are bigger, better, sharper, and fundamentally more meaningful eudaimonic bargains that tomorrow’s revolutionaries will strike. Here’s my point.

In a world bereft of meaning, choice is the most fundamental moral obligation. It is the visible hand that restores the missing link between plenitude and prosperity. Healing the bruised sinews of human agency depends on bargains fit for the future—bargains sculpted by rights that create opportunities to choose goods that matter in human terms. Rights to goods that redefine the boundaries of human possibility. You don’t choose what’s good because it’s right; you choose what’s right because it’s good.

The Wrong

2011-10-02T02:08:00.000-07:00

In the last post, I discussed the thread that ties the Metamovement--the wave of protests rippling across the globe--together: crudely put, human agency.

Why, then, does this sense of agency matter--now and tomorrow? In this essay, I'm going to introduce the concept of "wrongs"--and explain how they'll mold 21st century prosperity in the shape of eudaimonia.

Social contracts are built on rights. You might say, very crudely, that a "right" is to a "good"; that a right is the privilege to enjoy a given good--or, at least, the privilege to have the opportunity to consume, utilize, or benefit from a given good. Enlightened social contracts are constructed on the right to enjoy goods; first and foremost, to choose.

But industrial age institutions, I've long argued, have a bads problem: they oversupply bads (like unemployment, pollution, and toxic debt), and undersupply what you might call authentically "good" goods.

Hence, I'd suggest: sociopathic compacts--the inversion and negation of social contracts--are built on wrongs. Wrongs are to bads what rights are goods. Wrongs obligate people to consume bads, removing real human prosperity. Being force-fed McFood is a wrong. But being structurally limited to choose between different flavours of essentially the same toxic McFood is an equivalent wrong. This, then, is what it means to be wronged: to be "influenced", compelled, or limited to wandering through a garden of unearthly non-delights; to have to swallow--and stomach--the bitter, toxic fruits of harm, self-destruction, and loss.

Above all, to be wronged is to lose; to lose not just what one had, or has--but what one will have, could have, and, in the limit, if not in the sightless eyes of the gods, then at least according to a human conception of necessity, should have. To be wronged is to be condemned; not merely to a McFuture (as in: see this McFood? You're going to eat it--forever), but to the loss of what might not have been a McFuture; it's to be confined forever to a moment between the accident and the intention; it's to lose possibility, potential, and, beneath their horizon, the power of human agency, the human power to forge a future your own, the capacity to laugh at destiny and choose.

In a time of great prosperity, it might be possible for sociopathic compact composed of wrongs to endure--at least, in simplistic terms, if incomes are rising faster than outcomes are declining. The face of all that one is losing is masked by a rictus smile of more.

But in a time of crisis, a compact composed of wrongs is a house of cards--carefully built on top of a powder keg. When incomes are falling--and people are compelled to consume bads--then such a compact becomes a visible recipe for self-destruction. Damage compounds loss. The only question in this case is: can the sociopathic compact be rewritten? If it can't--for whatever reason--then the situation is one of breakdown, failure, and stalemate. And the answer is likely to be revolt.

Hence--the Metamovement. A movement of global movements recoiling, self-organizing, cohering, coiling around the central axis of wrong, hoping to spin it upside down. To turn the wheel of prosperity a revolution.

What does "success" or "failure" mean in these terms? I'd say: the Metamovement hints at a larger problem. We've reached the limits of the social universe. Once, you and I had inalienable rights; rights which neither man nor god could snatch, for these rights were neither granted nor given--but inherent, intrinsic, and inviolable. Today, you and I have inalienable wrongs; obligations to grimace and stomach the bad--equally inherent, intrinsic, and inviolable; from which there is little escape; little hope of relief; for which there is no remedy; to which there is no respite. To be wronged, today, is hardwired into the pulsing circuitry of the state of the art sociopathic compact--which, when seen from a distance, is a gleaming, whirling machine perfectly adapted to winnow and cull the fragile shoots of human agency.

You cannot reverse wrongs with wrongs. The antidote to indignity is not indignity, for the inhuman does not negate the inhuman. In this crude sense, the contours of the future are discernable. Just as Bouazizi commited the ultimate act of choice, so the Metamovement chooses to choose.

That choice is eudaimonic; towards lives lived meaningfully well, lives that matter, count, endure, resonate--and it had to have been eudaimonic. Yesterday's fatally broken social contracts are sociopathic compacts; post-suicide pacts, agreements beyond the destruction of people, venturing into the terra incognita of ecocide, sociocide, econocide, if you like--covenants to fracture and break the boundless possible on the shoals of the expedient and the immediate. We swim in the shallows, huddling together for safety from the net--but the eudaimonic depths already beckon.

The Metamovement

2011-10-01T14:34:00.000-07:00

Across the globe, protests are rippling out, waves in a pond. Or perhaps a better metaphor is vectors in an epidemic--a syndrome of viral contagion.

I believe that we're witnessing the rise of a global Metamovement.

The Metamovement is a movement of movements. Not all these movements are similar; no two are exactly like; each can be readily distinguished from the next. The Arab Spring is part of the Metamovement; the London Riots were part of the Metamovement; protests spreading across America, under the banner of Occupy Wall St, are all part of the Metamovement.

Yet, just like in an epidemic, each outbreak triggers the next--and in that cascade can perhaps be traced the jagged outline of the shared DNA within each cell of the larger metamovement.

Where did this virus erupt? The simplest answer is: in Sidi Bouzid, where Mohammed Bouazizi set himself alight, in protest. What sent Bouazizi over the edge of sanity--or perhaps into the arms of a kind of hyperrational embrace of a singular act of revolt?

"...He was 23 and had left school early because his widowed mother couldn't afford to keep him there.On 17 December Mr Bouazizi's vegetable cart was confiscated by the town council which said he didn't have permission to trade. When he tried to get the cart back a woman from the council slapped him in the face."

Got that? Bouazizi was systematically, structurally denied the opportunity to prosper, time after time, by a monolithic set of institutions. For the privileged and powerful, these institutions turned fortune into excess--but for Bouazizi, they turned misfortune into willful calamity, literally slapping him across the face, wresting from him the chance to be author of his own destiny, stripping a sense of agency and dignity from him with Kafkaesque precision.

In a sense, that sentiment is the common thread behind each and every movement in the Metamovement. The Metamovement feels like Bouazizi felt--a sense of grievous injustice, not merely at rich getting richer, but at the loss of human agency and sovereignty over their own fates that is the deeper human price.

In other words, it's not just about inequality--but the deeper failure of institutions. To let people--especially the young--redress inequality by whatever slender means they might muster, by creating new opportunities. At every turn, the people in the Metamovement feel not merely spurned and scorned--but suffocated and strangled by institutions every bit as unflinchingly lethal as a hangman's noose.

Their truth, I suspect, might be this: there's no one left to turn to--and so the Metamovement has turned to each other. Not for yesterday's notions of "solidarity", or the corporatist ideal of "inspiration"--but as nodes in a pulsing network whose coherence defines it: to demand institutions which can literally deliver the goods of enlightened social contracts. That enshrine in the people, first and foremost, the inalienable right to be authors of their own destinies--instead of mute victims, puppets yoked by the invisible hands of remorseless fate.

For no matter how small and insignificant those destinies might seem to those looking down from the Olympian heights, in an era where prosperity itself lies in tatters, to have no agency over your destiny is the final word; the allegorical slap in the face; the insult that cannot be borne; the spark of quiet revolution.

To get a deep, intuitive--visceral--feel for this, please stop for a second and visit We Are The 99 Percent. Check out some of the pictures--and reflect on the deeper thread that runs through them: one not merely of loss of financial prosperity, but of the paring back of dignity, of the evisceration of agency, of the disappearance of that which might be said to be essential to the experience of being human, before all else--the power to make purposive choices, the gods themselves be damned (for example, to reduce it to crudity, the hyper-American decision to "pull yourself up by your own bootstraps"). Read a few? Good.

It is, of course, this sense of choice that is the cornerstone of eudaimonia, a moral obligation to make if not the most, then at least better than the least of one's potential. And in that foundational sense, I'd say, the Metamovement is the first glimmering of a larger eudaimonic revolution that will burn over the globe like Bouazizi's fire.

Yesterday's institutions have reaped the whirlwind. The furies have blinked luridly awake. Not every revolt ends in revolution--but every revolution begins in revolt.

And make no mistake--this is revolt; insurrection against a monstrous, barbaric status quo that's failed too many, too deserving, for too long--while serving too few, too undeserving, far too well. It is not in the nature of man or beast to stay yoked to the gleaming machines of their own economic, social, and moral annihiliation. Better--as perhaps Bouazizi thought--to commit the ultimate act; to choose. To choose to let loose a brutally human cry; one whose echoes might come to define a defining decade.

Turning America's Downward Spiral Into a Virtuous Circle

2011-09-27T12:19:00.000-07:00

In the last post, I discussed a minimal case explanation of the crisis we're in: a vicious cycle of worse, where bads beget falls in real income beget worse bads. And then I suggested that to turn this vicious cycle around, we're going to need eudaimonic institutions, that set the incentives for people to live meaningfully well; to live lives that matter, count, endure, and resonate.

Here's my suggestion: if we can build eudaimonic institutions, we might see a virtuous cycle instead: one where human potential begets real prosperity begets human potential--call it a virtuous cycle of better.

So what, then, do these mysterious eudaimonic institutions look like--especially in the wild? Are there real-world examples? Sure there are--nascent, tiny, limited, but still potentially disruptive ones. Here are a few tiny examples.

First, let's get radical. Dylan Ratigan's recently proposed nothing less than a constitutional amendment to "get money out" of politics. That's not directly eudaimonic--but it's definitely indirectly eudaimonic (for you can bet lobbyist' aren't in business because they're aching for people to live lives that matter). Dylan's disruptive idea is centred on creating the freedom for people to begin living more meaningfully well.
Second, let's get incremental. America's long debated--and recently squelched--the idea of a carbon tax. Want to set the incentives for people to live meaningfully well--by punishing bads like smog, congestion, and fragmentation, and encouraging interaction, fitness, human-scale living, and cleaner, greener, higher-value sectors that might revitalize America's slumped exports? It's not exactly rocket science.
Third, let's get entrepreneurial. Consider the case of Endomondo, a tiny startup from Copenhagen with a radical idea: helping set the incentives for you to become fitter. It'll help you track your workouts, challenge your friends, monitor your performance, and more. Simple--and awesome. It's a crude, baby step towards a larger eudaimonic promise: do this, and you'll live better.

Now, these are far from the only--or the best examples. They're just three I jotted down. The larger point is this: all three are taking different routes to the same end--breaking the vicious cycle of worse, and unlocking a virtuous cycle of better. I hope what the tiny examples above do is this: make it clearer what a virtuous cycle of human potential begetting real prosperity begetting human potential might look like, and illustrate that it's not beyond the capacity of humanity to make it happen (in fact, it just might be relatively straightforward).

Now, make no mistake: these are tiny, limited, incomplete examples--not a full portrait of a 21st century economy by any means. It'll take nations constructing far bigger sets of institutions working in sync over years to begin making that historic transformation happen--sure, the three tiny examples above can't and won't do the job by themselves. It'll demand a fuller, more coherent, set of institutions, cutting across every pillar of society--that are even more directly, sharply, disruptively eudaimonic than those above.

I'd suggest: the answer to America's downward spiral is a eudaimonic revolution, an economic phase shift from a vicious cycle of worse, to a virtuous cycle of better. Here's the bad news: it's not going to happen overnight. Here's the good news: if we want to, we can start today.

America's Downward Spiral--And How to Stop it

2011-09-27T11:36:00.000-07:00

Welcome to the perma-crisis that never goes away. Here's the state of our increasingly panicked national debate about it. Will more stimulus fix it? Tax cuts? Subsidies? More "quantitative easing"? Budget slashing? My guess is: none of the above (though some of the options above are certainly better than others).

To explain, let me try and cut through the hysteria, with a minimal case explanation of what this downward spiral really is.

America has a bads problem. It's awash in "goods" that are in full or in part "bads".
I'd define bads as stuff that fails to matter positively in real human terms. You can define them however you like, depending on your calculus of choice, but it's hard to argue that SUVs, biggie size meals, and CDOs aren't, in large part, "bads".
Bads disguised as goods lead to bubbles. They're "valued" as goods, then revealed (slowly, usually) to be bads, and the result is a collapse of expectations.
The result is a structural imbalance, where a significant proportion of "capacity" (time, money, people, talent, ideas) is devoted to the production of bads. Not just once--as in a bubble; but consistently, repeatedly, structurally.
Over time, the more "bads" we produce, the less purchasing power the economy has (or, if you like, the lower average aggregate demand gets; or, if you like, the more lopsided the distribution of income gets)--because the outcome of bads is to impoverish the people that consume (and produce) them; that's their simplest economic definition.

Got that? Now, let me simplify it even further. Here's the downward spiral America faces: more (worse) bads, more volatility, declining real incomes, more (worse) bads.

See it yet? If you don't, think about it this way. I buy McJunk for dinner every night. My choice makes me fat (lazy, and uninteresting), shifts healthcare bucks onto society, and locks my town into McJobs. Median incomes decline. I buy (cheaper, more self-destructive) McJunk for dinner every night. It's a vicious cycle of bads: what you might call a dynamic equilibrium of worse.

Hence, my suggestion is this. Rebuilding 21st century prosperity is going to require not just near-term band-aids like stimulus. Rather, it's going to require making a deep structural shift--and rebalancing the surplus of bads with more authentic, worthier goods. And that, in turn, is going to demand eudaimonic institutions: institutions capable of setting incentives and building playing fields for people to live meaningfully well. For people to live lives that count, matter, endure, and resonate--not lives blighted and benighted by toxic, useless junk that's "bad" in the truest economic sense of the word.

That's an inkling of what I call a eudaimonic revolution. Here's the bad news: it's not going to happen overnight. Here's the good news: if we wanted to, we could get started tomorrow.

Redesigning Prosperity: A Six-Step Extreme Makeover

2011-07-31T05:00:00.000-07:00

If the challenge is raising societies up to higher levels of eudaimonic prosperity--meaningfully well lived lives--then what are the levers that are powerful enough to begin doing do so? What are some real world choices that societies can make to begin making a eudaimonic transition? In geek-speak, what's what you might call the beginnings of a eudaimonic "strategy (or policy) space"?

Here's a quick take: six areas in policy space I believe advanced economies will have to enter--and master--to make the quantum leap to 21st century prosperity. Here's the little analogy behind it: if America were a person, it'd probably be something like a morbidly overweight, thoroughly broke, highly superficial, junk-food loving, MTV-addicted couch potato with little ambition: a giant waste of human potential. Hence, a six step program to turn sluggardly decline a tiny bit more eudaimonic.

Detox. While most advanced economies claim to be "post-industrial", the plain fact is that belching, capital-intensive, rapidly depreciating, high-maintenance, often downright self-destructive industrial age stuff still receives the lion's share of subsidies: agriculture, oil, water, "banking". A eudaimonic transition can't happen if you're too busy propping the industrial age--hence a vital step is likely to be gracefully (or fractiously, whatever it takes) letting yesterday's structure of subsidies subside and wane.
Makeunder. Do you know what a makeunder is? When a person wearing way too much bad makeup takes it off--and looks a lot better for it. That's pretty much the state our economy's in: industrial age concepts like GDP are giant slabs lipstick, massive swathes of eyeliner, and gigantic dollops of foundation on the proverbial pig--they perpetually let us overstate real prosperity, as it matters in authentic human terms. When it comes to numbers, we (seriously) need an institutional makeunder: loads less desperately artificial less-than-attractive prettification, and more natural beauty shining through.
Credit card. In most advanced economies, debt's heavily subsidized (through tax shield effects, and the like). Result? A structurally tilted playing field, that incentivizes debt--and accelerates bubbles and crises. A more eudaimonic approach is to limit debt subsidies, and, where markets fail, subsidize equity instead--because equity rewards joint effort, active engagement, and fuels participation, and punishes disengagement. America's stock markets aren't broken because there's too much equity--but because there's far too little (fewer than 15% of Americans own "shares", etc). Our economy's built on thin financial bedrock that limits and stifles productive economic interaction--in favor of a revolving door of once-cheap (and now suffocating) credit.
Gym. It's one thing to limit subsidies for centuries-old stuff. It's another to reward groundbreaking breakthroughs--and most societies have few ways to do so except relying on "venture capital" (which is in real economic terms, I'd suggest, as grossly inefficient as allocating capital as Wall St is). Advanced economies will need to provide a range of 21st century public goods--Which they currently suck at providing. Hence, I'd suggest a new workout regimen for the atrophying muscles of great achievement: not just subsidies for public "school", but for public contests, tournaments, debates and intellectual battles, in cities and towns, large and small--all aimed at igniting, sparking, and rewarding breakthrough thinking in every discipline. Let's create social incentives to make sitting on the couch all day, banging down "food-like products", and obsessing over Jersey Shore look like the excremental waste of human potential it actually is.
Charm School. Let's face it: our institutions need far sharper checks and balances, if we're going to prosper--for civil society's been rendered as toothless as a kitten. Corporations should face real liability when they err--not just today's wrist-slaps: hence, less regulation, but better enforcement of tougher regulation. Politicians should face sharper sanctions when they act like tantrum-prone infants: hence, structural reform of lobbying, replaced by more information, faster. And as "consumers" and "citizens", too, people's self-destructive disengagement and apathy should be punished: simple value added taxes for hyperconsumption, and, conversely, incentives for basic civic engagement.
Diet. Let's simplify the onerous, socially pointless complex tax code--we all know it is the way it is to prop up pure rent-seeking, written by tax lobbyists for tax lawyers. Here's a simpler, better approach: if it's harmful to people, or useless to society, tax it. If it's beneficial to people, useful to society--don't. We can debate the precise calculus, but the principle's straightforward: the former half would include stuff like carbon, banking, congestion, massive inheritance, dumbification, and obesity (as in food, not people) taxes. The point, of course, is to create socially productive incentives--not just zombifying malincentives. Now, there are those who might argue that yesterday's tax code was, once upon a very long time ago, written to do so--but I doubt there are many who believe it hasn't become a cynically grotesque caricature of itself.

Now, the above isn't "the list" of eudaimonic policy choices. It's not even the beginnings of "the list". It's just a very incomplete scratchpad of ideas that might help us discern the direction of 21st century prosperity that's built to last, instead built to crash.

Pioneering that trail will, if you ask me, take a decade of tough choices--or more. Here's the catch.

Some nations are setting out on the journey now. Some, making preparations for a hard journey. And some are still on the couch, downing junk-food, howling at the screen--and maybe just frittering their future away.

Why This Crisis Isn't Going Anywhere--And What To Do About It

2011-07-30T00:48:00.000-07:00

Another quarter--(yet) another dismally awful, stubbornly stagnating set of GDP figures--which come as yet another "shock" to the status quo. As John Cassidy (one of my favorite financial writers) offers in the New Yorker: "GDP Shocker: US on Verge of Double Dip Recession".

What's going on here? Why continued stagnation, and perhaps more interestingly, why is the status quo always "shocked" by it, every dismal quarter? Here's what it suggests, in no uncertain terms: they're struggling to discern what this crisis is yet.

To illustrate, consider the chart. If you're expecting a "recovery" to mysteriously materialize out of the mists of bailouts, bonuses, and financial determinism, it's beyond alarming--it's confounding: GDP's been revised downwards for several previous quarters as well, suggesting the downturn's been much more severe than was previously thought. It means, to put it bluntly, not just that your expectations about the future were amazingly wrong--but that you've been retrospectively wrong about the shape and intensity of the crisis in the past as well.

All of which raises the question:

How long are we going to keep on trying the same old failed ideas--just harder? How long are we going to keep on listening to the same old discredited perspectives--just more intently? It's magical utopian thinking at it's finest: it hasn't worked for nearly half a decade--so clearly, we're not doing enough of it. Let's keep on doing more of the same--because one day, it's going to happen, for sure, I know it, believe me, just wait, keep the faith. (does this sound like the Rapture to you? It sure does to me).

It hasn't. It won't. It probably can't. Yesterday's solutions were built for yesterday's problems.

So here's a different narrative; a quick summary of one part of my little take about what's really going on.

The clanking, wheezing institutions of the industrial age are beset by a titanic flaw. They overcount real benefits, and undercount real costs. What happens to an economy built on such institutions? Simple: instead of authentic value being created anew, wealth is merely transferred from party to party. Hence, corporate profits spiking--while nearly every other party in the economy stagnates. Hence, Wall St growing fat off the public purse, while the government slowly goes into illiquidity.

The real problem is this: nearly every one of our institutions is broken. Think of institutions as software for human accomplishment. So here's the globe's challenge for the 21st century: reimagining and redesigning the software for human accomplishment.

Because the truly poisonous effect of industrial age institutions, by undercounting real costs, and overcounting real benefits, isn't merely that they limit us to creating fake, thin artificial value and ponzi-like hollow "profit" today--but, more perniciously, that they shatter the incentives for great achievement tomorrow. They crumple the human spirit, smash the human psyche, dull the human brain, and toxify the human heart (think I'm kidding? Read this).

An economy built on undercounting costs and overcounting benefits is one where we squander endless amounts of human potential on earth-shattering achievements like disposable razors with yet more blades, even more vulgar deodorant marketing campaigns, and gloopier, fattier "food-like products". Needless to say, the trajectory of such a system of human organization doesn't ascend to higher and higher peaks of prosperity--but descends into social fracture, drooling idiocracy, mass stagnation, and decline.

Hence, here's what a nation who wants to be tomorrow's powerhouse of prosperity really needs: a 21st century plan to reboot industrial age institutions. To reimagine and rethink the clunking, belching contraptions known as "GDP", "the corporation", "investment banks", "credit ratings", "jobs", "government", and more. To reimagine them as eudaimonic levers--tools that can amplify not the just "industrial output" of nations, but which can ignite and spark the highest human potential; levers that can raise people not merely into lowest-common-denominator faux-designer Jersey Shore material plenitude--but into meaningfully well lived lives. At it's worthiest, an economy is an engine not merely for "enrichment"--but for human prosperity.

Until and unless the first halting steps of a eudaimonic transition are made, here's what probably won't happen.

Corporations will have little reason to invest in 21st century jobs, assets, or businesses.
Investors will have little reason to seek and fund anything but incremental, yawn-inducing "innovations"--instead of groundbreaking breakthroughs that matter.
People will have little reason to be more than mute "consumers" of mass-made junk
Financial markets will be beset with extreme myopia and monopoly power, and the efficiency of capital will continue to fall
Rent-seeking will continue to consume the "real" economy, and paradoxes of thrift will ensue
Economies will continue to face steep levels of malinvestment, accelerating crisis, and recurring (ever more expensive) bailouts
Societies will continue to fracture, polarize, dumbify, and ossify.

See the chart above? We can play this fools' game--squabbling and quibbling over the moldy remnants of the industrial age--until we're right back to hunting with stone axes. Or we can create a eudaimonic future. The choice is ours--and it always has been.

The New Road to Serfdom

2011-07-29T01:59:00.001-07:00

Some days--these days, more often than not, I wake up, and the headlines make me want to insert my head into the nearest black hole. It's not just that they demonstrate that our so-called leaders haven't the tiniest shred of a clue what this crisis is really about (hint: institutions). It's darker, deeper, more troubling.

Rather here's what I see: our institutions, far from evolving and improving, at the time we need to update them most, are actually moving backwards. We're taking tiny steps--and sometimes giant leaps--backwards in time, deconstructing the basic building blocks of civilization. Think I'm exaggerating? Then like most of our talking heads, pundits, and chatterati, you might need a tiny refresher course on what civilization and prosperity are yourself.

Consider two recent cases in point--that aren't the obvious ones, like newspapers spying on the families of murder victims.

Goldman's hoarding aluminum in warehouses, literally squeezing the real economy dry of aluminum--and extracting rent by doing so. Markets at work? Think again. Goldman's just one of many players exploiting new rules (which restrict outflows of aluminum from warehouses, forcing up spot prices) laid down by the London Metals Exchange. So what is the LME, if not a market? It's the very opposite: a syndicate of brokers none of whom have the slightest near-term interest in, well, ensuring a level playing field, open market, or price discovery. In plain english: it's a syndicate running a racket. It's a giant leap forward for rent-seeking, extracting profit without creating a single tiny morsel of authentic value--but a giant leap backwards for the open markets that are the most basic building block of human prosperity.

Then there's the amusing case of Ronaldo (the Real Madrid footballer) being utilized as collateral in the latest round of Spanish bailouts. Hilarious, right?! Sure--and then maybe not so much. When you think about it, it's meets pretty much the definition of debt bondage--which, far from an "imaginary" construction of hippies, is recognized by the UN as a form of servitude, and is against international law. Think about it: when people can be used collateral to pay off debts ("Your employer owed us--and now you're work for us for the next ten years, to pay off his debt"), we've just taken a giant, massive leap backwards in civilization. In fact, we're racing down a slippery slope that ends in indentured servitude and slavery.

Welcome to the new road to serfdom. Here's how I'd put it. Far from innovating our institutions in this time of historic, sweeping global economic crisis and social fracture, the very opposite seems to be happening--our institutions are diminishing, regressing, devolving, sliding back tens or hundreds of years at a time into economically prehistoric practices and beliefs.

The question is, then: why? Here's maybe not "the answer"--but a suggestion.

We've forgotten what the economy's for. It's not a lowest-common-denominator tool for vulgar material plenitude, or a brain-dead mechanism for mere financial "enrichment"--but, at it's best, it's highest, it's most enlightened, it's fundamentally worthiest, an economy must be an engine of human prosperity: a eudaimonic lever. A lever strong enough to raise human potential to unseen--and perhaps even undreamt of--heights.

Here's what all the above really says: far from a wishful ideal, eudaimonia's a razor-sharp necessity. No society in which the returns to rent-seeking outweight those to creating, building, transforming, and bettering can prosper. No society in which people are treated as chattels to be bought and sold by and to the highest bidder can be said to meet any definition of human prosperity.

Hence, a tiny conclusion: either we have the wisdom, courage, hunger, defiance, humility, and determination to make the quantum leap to eudaimonic prosperity--or we might just continue our headlong slide backwards, right back into a new Dark Age.

Eudaimonics 101: How Long Will This Great Stagnation Last?

2011-07-27T09:03:00.000-07:00

"So, just how long will this Great Stagnation last, anyways?"

That's the question many of you have been asking me--so here's a quick take (and of course, you can add your own answer in the comments below).

Instead of looking to GDP, everyone's else's forecasts of GDP, or invoking the moldering spectre of the once-unflappable American Dream, let's look deeper--into the structural heart of the disease itself. Let's try and actually use a tiny bit of evidence and logic to derive maybe not "the" answer"--but at least an informed conclusion.

Unless you've been living on Mars, the quasi-financial buzzword of the last several years has been deleveraging; ie, in simplified terms, paying down, paying off, and writing off debt.

There's been what I'd characterize as a bit of an urban myth making the rounds lately: that deleveraging has "kicked off", and so recovery's right around the corner. Has it--and is it?

Nope. The chart above tells us total debt in the economy hasn't decreased--just relatively flatlined. That means: while households (or banks, or other sectors) might have reduced their debt, they've done so by shifting it around (in this case, to the public itself, which, of course, is just deferred taxation or benefits foregone).

So let's slay this beast of a myth. Deleveraging is important--but it's far from happening quite yet. Though "financial" deleveraging (ie, for banks) and "household" deleveraging may be said to have happened--though shadow vehicles, synthetic leverage, and off-balance sheet tricks prevent us from knowing whether that's meaningfully true--the economy as a whole isn't much less precariously perched than it was a few months or even years ago.

I'd say there are at least four straightforward implications of the chart above.

While we've reached the end of dumb, debt-driven growth--we're struggling to find ways to grow without debt as the rocket fuel for imbalanced, big-box hyperconsumption.
At some point, deleveraging is going to require figuring just how much toxic debt is really on the books nationally (a process of discovery which ever bailout and hidden bailout simply staves off and makes ever more difficult and costly). Right now, we're passing the buck--and that's exactly how, for example, Japan ended up with a lost decade or three.
For deleveraging to meaningfully happen, much of the pile of debt above is going to have be swapped for equity or equity-like contracts. And that's probably going to require fundamentally new institutions that supercede industrial age "banks".
The transition to a smarter, tougher, more meaningful model of prosperity, built on equity, investment, imagination, and increasing returns--a prosperity that matters in human terms--is still at the horizon, not just outside the cockpit.

In sum: we're not (anywhere) near the end of this Great Stagnation. We might not even be nearer it's middle. In point of fact, it's duration and intensity depends fundamentally on the decisions we make right here, right now. If you want my best guess at a hard number, I'd say putting the pieces of the jigsaw puzzle above together, that towards the end of this decade might be a reasonable estimate to outscale yesterday's apex of prosperity--but the real point is deeper and bigger.

Right now, we haven't made the decision to treat the disease--just its most superficial symptoms. The results are plain to see: we've stopped it's spread, but are far from curing it's maladies.

Will we choose to stop passing the buck back and forth--and to start jointly investing in the future? That's the question that counts.

Sidenotes: Smashing The Status Quo's Iron Curtains

2011-07-26T02:04:00.000-07:00

I'm little amused. To explain why, let me recap my take over the last several years, compared to the status quo's:

In 2006-7, the prevailing narrrative discussed a never-ending boom thanks to hyperfinancialization. I suggested, in stark opposition: a historic, generational crisis--not just a crash, but a titanic reconfiguration of the global economy.
In 2008-9, the prevailing narrative switched between "zomg what just happened?! what kind of banking crisis is this? is this a liquidity crisis? is this a solvency crisis?!!". I suggested, in total disagreement: it's none of the above--it's an institutional crisis, hardwired into the DNA of our economic "rules of the game".
In 2009-10, when the prevailing narrative was "ah, that was just a banking crisis--we're going to recover next quarter!! whoops, I mean--next quarter!! whoops...". I suggested, warning against unfounded optimism: we're in for a prolonged period of generalized stagnation (replete with toxic dynamics like mass unemployment, falling real incomes, wealth transfers, regulatory failures)--because we're still in an institutional crisis, not out of a simple "banking crisis"
In 2011, the prevailing narrative: "uhh, Bob...do you know what the fuck is going on here? Steve? Bill? Todd? Bueller?!! Anyone...?!! Heeeellp!!". In stark contrast to pundits still largely struggling to understand what this crisis even is, I've already suggested (and published): a six step plan to reboot prosperity for the 21st century (the Manifesto), numerous posts and essays on the topic of building next generation institutions.

Now, of course, I'm far from the only one who's taken on the hilariously wrong narratives and explanations of the status quo--and won. There are plenty more like me (Yves at Naked Capitalism, Matt Stoller at the Roosevelt Institute, John Robb at Global Guerrillas, economists and thinkers as varied as Dasgupta, Stiglitz, and Arrow).

So, post-LOL, here's my question:

Why the hell are we being so obviously ignored (in favor of the same old folks who were totally, well, wrong) ? What the hell is going on here? We don't even get damned with faint praise-we get totally tuned out. It's like Jay Leno met Josef Stalin in hell and cracked a bad joke: the same old, totally wrong, largely clueless (mostly) dudes still grab the lion's share of attention, resources, power, control. The iron curtains came down a long time ago, and never shall they be raised up again.

Sorry, but that's bullshit. It's intellectually, creatively, and ethically bankrupt. Let's say, for the sake of argument, that there was a place where suggestions and discussions about tomorrow had been consistently accurate--not just in their "what", but also in their "how", and thir "why"--at a time when nearly every pundit, columnist, and thinker had been sharply, visibly wrong. You might expect the person or people behind it to have gained just a little bit of cred--and for the media to actively try and engage with them, since, well, they weren't catastrophically wrong.

Of course, it's almost totally the opposite. The mass media ignores you and I to an almost absurdly hilarious degree these days (for example, given the amount of discussion we have on Twitter). In my personal case, they have about as little interest in speaking with me as a Jersey Shore addicted couch potato does in Baruch Spinoza's collected works--you can count the number of interviews I've done this year for yourself and see.

All of which brings me back to my question: why? Here's my own little conclusion: like most hierarchical, top-down, imagination-stifling bureaucratic machines, mass media has little capacity to tolerate (let alone nurture) difference or dissent--whether in terms of intellectual, human, or social capital.

To explain, consider something I've been thinking long and hard about: a tiny explanation for why much of the media totally, almost absolutely (with the exception of folks like the stellar Dylan Ratigan) ignores little old me.

I've got three strikes against me. I'm young, brown, and suggesting the status quo needs reform. I'm not asking you to do your "job", I'm suggesting you start disobeying the dictates of yesterday's dogma--and I'm a dude with a funny name and dark skin doing it. I'd bet that were any one of these three things not true, the veil (ironically enough) would begin to be lifted.

For example. Were I, for example, to have more gray hair, or slightly less brown, I think my message would be more "believable"--not because of the quality of my work, but because of the perception of the messenger. Conversely, much of the media, by my reading, is still steeped in the narrative, culture, and mindset of financial determinism. The unsaid assumption behind nearly every article and interview is: "We can financially engineer ourselves out of this financial crisis". Of course, my perspective is:we can't, because it's not one. Were I to be a young brown guy saying: "Hey, here's why we're going to recover tomorrow!! Because we rock!!", I'm pretty sure I'd be met with a whole lot more media interest--because that storyline supports the existing media narrative.

But to be young, brown, and an advocate for transformation? It's like a trifecta of difference, that's just a bit too hard for many people to handle. I'm pretty sure the newsroom conversations go something like: "So, Pete...let's talk to someone who looks and thinks more like us instead (never mind if that gets society, the economy, and the rest of us exactly nowhere)".

So here's my point. The mass media, at this point, is, I'm pretty sure, never, ever, going to give people like you and me a voice. They're in a classic competence trap: they've prospered by stifling difference, sewing the seams shut on well-worn narratives. But that's exactly what's not going to get them out of the mess they're in.

Hence, here's the good news. You and I don't need them to give us a voice --the sun has already set on those days. If you're reading this, right here, right now, on my new mini-blog the point is that you and I need the media a lot less than "the media" needs us (you can check my now-ancient ppt on media economics for more on that topic :)

What I do need (and I'd guess most people in my position need) is for you to engage with my heavy posts just a little bit more seriously. I can churn out the lightweight stuff by the boatload--but it's the heavy lifting that's the harder, more worthwhile work. That's where we're going to have the richest, most fruitful discussions.

My suggestion is: let's leave those stuck in a predictable, homogeneous, stagnating, we'd-believe-you-more-if-you-were-an-old-white-dude past in the past. Let's smash through the iron curtains of the status quo--by creating the future.

Eudaimonics 101: America Needs a 21st Century Investment Plan

2011-07-25T02:27:00.000-07:00

"We tried pretty much everything, and nothing sent this Great Stagnation packing--so what do we do now?" It's the omnipresent question, the invisible brontosaurus in every boardroom, backroom, and committee hearing. It says: the status quo's out of ideas, out of options--and out of time. So herewith, a tiny suggestion.

If you accept the proposition that this Great Stagnation is no mere, short-term, self-correcting financial crisis--but an institutional crisis of human potential, then given that deeper diagnosis of the malady, the remedy become just a little bit clearer.

To begin rebooting prosperity, America needs a human potential investment plan (strategy, and vehicle): what you might call a Eudaimonia Fund. The ultimate goal of such a plan? Not merely to "stimulate" the economy (ie, spark commercial activity)--which clearly hasn't been the best of investments. But, more vitally, to spark human potential. To redraw the boundaries of our capacity to live meaningfully good lives; to take on the globe's greatest problems, and answer them with equally great achievements; to optimize the capacity of society for investing in and igniting, renewing and rebuilding, creating and imagining, exploring and refining what elevates, inspires, betters, lasts, multiplies, matters.

The first question, then, is this. Where might the capital for such a fund might come from? To begin with, let's rule out America's favorite approach to funding stuff: issuing "debt" on "the markets"--because of course, debt-driven dumb "growth" is the antithesis of all things eudaimonic.

I see at least five global pools--oceans, to put it more bluntly--of capital the Eudaimonia Fund could tap:

1. The $2.5 trillion of cash and liquid securities sitting on corporate balance sheets. They're largely idle, earning little returns, put to exactly zero social use.

2. The $3 trillion China's stockpiled in foreign currency reserves.

3. The $2 trillion Japan, Saudi Arabia, and Russia have stockpiled in currency reserves.

4. The $4 trillion under management by sovereign wealth funds, largely earning subpar returns for outsized risk.

5. $1-3 trillion of the $6.5 trillion American households (and non-profits) have in savings deposits, earning little to nothing in real terms.

That's already about $15 trillion of capital that's effectively a deadweight loss to global human potential, and could--and should--be put to radically, explosively more productive use. To put that in perspective, that's about a quarter of global GDP--one fourth of the world's income--going nowhere fast, to prosperity what a morbidly obese Jersey Shore watching couch potato is to humanity: slightly useless. Now, I'm not suggesting that the Eudaimonia Fund will, can, or should be made up of all this capital--just that there's plenty of capital for it to tap (and I'm sure there are plenty more of these empty oceans of capital to be discovered if one were to chart the financial globe in detail).

The second question is this: how might this capital be mobilized, via a real-world investment vehicle? I'm going to save that for a future post--but for now, suffice it to say, there are no shortage of (no pun intended) options for financial instruments that can mobilize this capital by parcelling out risk and reward in interesting and sophisticated ways (think, for example, contingent convertibles or various synthetic derivatives if you're a finance geek).

The third, and biggest question is: what is the strategy? What should a fund whose goal is lighting the spark of 21st century prosperity invest in (and forego)? Sorry, team Obama: "shovel-ready" infrastructure is 1930s approach to a 21st century economy. Pioneering a great transition to eudaimonic prosperity is going to take a lot (lot) more, better, wiser than shinier roads, bridges, and airports--because eudaimonia isn't about stuff. So as the tiniest of starting points, I'd suggest the five institutions I discuss in the Manifesto:

1. Value cycles. 21st century infrastructure to shift to an economy powered by renewability and reusability. Think cleantech and smartgrids (and much, much more) and you begin to get the picture.

2. Deep democracy. A radically participative, decentralized, deliberative democracy--both political and economic. Think open government, participative organization, the nuts and bolts of a real shareholder democracy, institutional hypertransparency, and much, much more.

3. Massive, low-cost megafailure. Think, for example, hundreds of micro-incubators for both traditional, social, and as-yet-unimagined kinds of enterprise; think national megaproblem-solving contests and tournaments; think microexperimentation budgets and incentives for local schools, counties, labs, and even just plain old people.

4. Impossibility. In the Manifesto, I define economic impossibility as the unthinkably audacious: the convergence of ultra low-cost products with ultra high-need demand. Here, think impossibly ambitious social goals for healthcare, education, transportation, and (working) finance--and incentives for those, from R&D to commercialization, who can bring said goals to life.

5. Betters. The last one's the simplest--yet the hardest: updating GDP to actually become an indicator that matters to humans; building novel Big Numbers that let us measure, monitor, and manage not merely the economic health of humans, but the human health of economies.

Now, this might sound like sci-fi to those of you steeped in yesterday's dogma. But remember: at this point, we've tried nearly everything the status quo has to offer, and it hasn't worked. Alarm bells ringing yet? Here's a reality check: right about now, we're out of options, out of ideas--and running out of time. Hence, perhaps it's time to expand our conception of the possible well into and maybe even beyond the tired, tedious, and incremental.

Make no mistake. The above isn't "The Plan". It's just a set of suggestions for an approach to conceptualizing such a plan. I'm sure I've left out a lot that's vital, and included a lot that's not.

The point is this: America's reaching a turning point, where it heads beyond decline's point of no return--a watershed moment in history where confidence is lost, momentum falters, and what little vision there is begins looking backwards.

The time to take a quantum leap into a eudaimonic future is now. But it won't happen by itself. It will take a heaping spoonful (and then some) of hard work, optimism, impertinence, courage, wisdom, hunger, and humility--to name just a few. Perhaps, then, it's time--if it's 21st century prosperity we wish to pioneer--to get started.

Eudaimonics 101: America's Real Debt Crisis

2011-07-24T22:52:00.000-07:00

Want to know how big would America's "debt crisis" be if we looked not merely at (largely artificial) "fiscal" and "financial" costs, but at real economic--social, human, natural, personal, emotional, and more--costs? You probably don't want to know.

So grit your teeth and let's do a quick back of the envelope calculation just for fun. Consider it a tiny, imprecise exercise in what I call "eudaimonics" (I'll explain that--and you'll get it--in about three paragraphs.)

First, let me explain why doing so matters. The real economic costs above aren't just the costs of paying back interest and principal on financial "bonds". They're the costs of restoring and rebooting what you might call the bare beginnings of an authentic, meaningful prosperity. They mean we might begin to have meaningful work, life, and play (instead of work that destroys our souls, leisure that dumbifies us, and allows us zero time to reflect and grow), a thriving environment (instead of one that's withering), markets that work (instead of blow up), society that connects (instead of fractures and polarizes) and infrastructure that works (instead of crumbling, battered airports, buildings, and roads that, at this point, look like the set for an end-of-days zombie apocalypse flick).

So: to begin with--America's debt as a percentage of it's GDP is around 98ish (aka, it's debt/GDP ratio). The eudaimonic question is: how high would it be if we added back some of the costs above?

Here are some mildly educated guesses (please note: since this isn't a book, I won't fully explicate them, but leave them open for discussion and for future blog posts. You're more than welcome to challenge them, add your own, or even add or subtract entire categories).

My hunch, based on roughly comparable costs across the glove, is that the costs of dealing with the full spectrum of environmental damage would clock in around 10% of GDP.
A very incomplete set of human costs--stuff like marginally declining gains in life expectancy, education, and experience; investing in talent, skills, creativity--would probably, based on rough unit costs per person, clock in around 5% of GDP.
A tiny, limited number of social costs--financial markets that blow up regularly and get bailed out, fuelling moral hazard and malinvestment, industries like autos, energy, and agriculture that receive hidden subsidies, pure rent-seeking and deadweight loss that leads to foregone efficiency in industries like law, lobbying, retail, and banking--I'd say come in close to 15% of GDP.
A basic conception of what you might call emotional costs--at a bare minimum, the toll a sense of meaninglessness, pointlessness, what management thinkers call "disengagement" and "apathy" takes on real productivity, efficiency, and effectiveness; the toll of a rising tide of poor and ill mental health on the same--I'd say, considering American levels of productivity, probably clocks in around 15% of GDP.

So the official debt to GDP ratio is around 100%. But just by considering an incomplete set of real economic costs very imperfectly, we've arrived at a number closer to 145%. I'd say just a slightly fuller, more nuanced, less back-of-the-envelope take would easily the push "the number" up to (and maybe past) 200%.

America's real economic crisis is one of what, in the Manifesto, I call deep debt.

Think about it this way. 100% debt as a percentage of GDP is a number that's got the (mostly) old (mostly) dudes that run the world in brow-beating hysterics, crying: "Armageddon!!". But all that is missing the point. A large portion of the 100% of GDP that's financial debt is public debt--which for all its many sins, is mostly covered. While there's talk of America "defaulting", no one takes seriously the idea that America's going to leave financial creditors without a penny on the dollar--just that it might have liquidity issues for a brief while.

Yet, real default--a few pennies on the dollar of debt--is exactly what America's been doing to what you might call not merely financial, but deep creditors: people, communities, and society, in terms of human, natural, and social costs--which have been pushed aside and left largely unfunded and underpaid, if not totally unpaid.

If we conceive of "debt" not merely as an accounting device meaningless in human terms, a financial fiction owed to nominal creditors--but as a real economic burden owed, the eudaimonic promise of a meaningfully good life, then our economy isn't just underperforming: it's structurally dysfunctional.

Igniting eudaimonic prosperity isn't about paying off financial debt. We can manage that perfectly for decades, and never get any closer to mastering the art of lives lived meaningfully well. Rather, it depends critically and vitally on the ability of a nation to pay down and pay off it's deep debt.

Welcome to what I call eudaimonics: the art and science of rebuilding a prosperity that matters in human terms. It's calculus isn't about mastering the dismal, drab techne and formulae of finance, "profit", and "business"--but about optimizing the capacity of societies for investing in and igniting, renewing and rebuilding, creating and imagining, exploring and dreaming up awesome, world-changing, revolutionary stuff that elevates, inspires, betters, lasts, multiplies, matters. It's end isn't McMansions, Hummers, strip-malls, Jersey Shore, Donald Trump, biggie-size-meals, and faux-luxury-sweatshop-made-mass-designer-junk--but an authentically, meaningfully, resonantly good life. Lives in which every second of every minute is, in the truest economic sense, more than worth living.

So here's my conclusion--and my catch.

America might never master eudaimonics. But here's what's for certain: there are nations, perhaps hungrier, sharper, smarter, wiser--who will. It's to them that a meaningful prosperity will accrue--and from them the lion's roar of advantage will be heard.

The Old Wives' Tales of Wall Street's Doomsayers

2011-07-24T12:36:00.000-07:00

"Economic Cassandras have been issuing warnings for years. I know. As a financial writer, I've been bombarded with the gloomy press releases of such noted pessimists as [] and [] for more years than I have gray hairs. But the dire consequences never seem to come to pass...

...Notwithstanding all this, the scary scenarios keep arriving in the morning mail. A notable sample is contained in []. The issue outlines "Armageddon" for the economy, an eventuality that he clearly regards as inescapable 'sooner or later'. The five phase script begins with 'stepped up money creation' in the face of 'deflationary pressure and debt problems' and progresses through assorted economic difficulties until, with phase five, a depression settles in.

I continue, as I have done for more than a quarter century, to lob such hair-raising (and often headline-seeking) missives into a generous deskside wastebasket".

Edits and bolding are mine--and I've stripped out a few words to create a little riddle for you. Guess who wrote the above--and, perhaps more interestingly, when?

It's from a little book called "Beyond Our Means", by Alfred L Malabre, Jr, (then) economics editor for the Wall Street Journal, published in...1987. But it sure does sound timely, doesn't it?

The context, of course, is that that was the last time America confronted a similar set of issues as it confronts today: the spectre of debt, a loss of competitiveness, potent and rising international rivals, deep-seated internal confusion about which way prosperity lay, and a general malaise about the future.

Now, what's really interesting about the quote above? Well, it's what I've bolded. See what it implies?

The doomsday scenarios coming from "the markets" that Malabre so neatly and elegantly outlines (and dismisses)...are pretty much exactly the same as those floating around today.

Today, at this historical juncture, we probably think that such diagnoses are new. But in point of fact, they're cliches: they've got a long and less than illustrious history. Far from being novel, interesting, or, more powerfully, historically relevant, accurate, and valid--they're trite, historically implausible restatements of what you might call an age-old financial old wives' tale. Like most folk tales, it contains a whole lot of speculation and superstition--but less than a grain of truth.

The question then, is this: why the same doomsday scenario, repeated over and over? Well, to be blunt, it's the logic (or illogic, take your pick) of "the markets" taken to an extreme. What's really interesting about the scenarios above is that they're perfect, shining examples of financial determinism. They're penned by folks who've spent lifetimes trading, but display little understanding of the real economic causes (and consequences) of prosperity--in them, the mechanisms of finance aren't the means to the end of prosperity: they're the ends in themselves.

I took the time to transcribe the paragraph to highlight this point:

Today, too many of us--whether journalists, readers, or just plain people--often take the wildest, most wide-eyed claims of "analysts" and "investors" as biblical truth of a coming "Armageddon". The reality is that the first phase of a kind of financial "Armageddon" already took place--a few years back, when a significant chunk of the globe's GDP was invested in bailing out the global financial system. We're living through the aftermath--and while it's going to get worse before it gets better, the old wives' tales that are spun today, like those spun yesterday, replete with hyperinflation, global pandemonium, and imminent descent into anarchy, are just that: superstition over reason. Their goal? To persuade societies into propping up the largely socially useless edifice of "finance", an engine of malinvestment and speculation, at any price--just like old wives' tales are there to knock the superstitious and gullibly credulous into line.

Hence, we'd do well to look deeper, and examine whether there's real economic logic behind doomsday claims--whether such claims amount to reasoned, plausible arguments--or whether they're just that: claims, full of sound and fury, signifying nothing.

If they're the latter, like Malabre, perhaps we, too, should toss them into the nearest wastebasket--without much of a backwards glance.

*Thanks, for his always awesome library, to my Dad :)

The Kabuki Quandary

2011-07-24T07:33:00.000-07:00

I'm betting that you know what a kabuki is. So consider, for a second, the suggestion that those at the heads of our institutions are playing out a kabuki. Like mute actors on a stage, acting out the empty steps of a ritual that has little to nothing to do with kickstarting real prosperity.

Wikipedia says: "Kabuki theatre is known for the stylization of its drama and for the elaborate make-up worn by some of its performers". Sound familiar? Replete with drama, heavy with emotion, laden with threat, bluff, and bluster--long on metaphorical makeup, short on substance--today's great institutional narratives, conversations, quarrels, and debates are mostly sound and fury, signifying nothing.

Consider the many kabukis at work in the global economy today. America's debt ceiling debate--largely artificial, a product of gamesmanship, totally divorced from America's larger social, human, and infrastructural challenges. Have we seen this script played out before? Many times--last but not least during the 90s (twice). Or the quarterly dance of corporate earnings--guidance issued, analysts called, numbers published. The script plays itself out like clockwork, over and over again--yet, while corporate profits have boomed straight to breaking point (a crash is around the corner), little real prosperity has resulted.

There's plenty more examples. Credit ratings downgrades, jobs numbers, elections, and bailouts, to name just a few. All are examples of kabukis: elaborate sets of ritualized steps each side takes, with the (largely meaningless) outcome known in advance to the players of the game. It's what you might call "prosperity theater"--drama and spectacle, instead of the real thing.

I could go on, but here's my point. Policy-making has devolved to what economists call cheap talk--noise bereft of signal, threats and bluffs issued solely for strategic reasons. Here's a simple definition: "In game theory, cheap talk is communication between players which does not directly affect the payoffs of the game".

And that's exactly what's happening at the tops of today's institutions. Lots of talk--but none that meaningfully affects the payoffs of people around the globe.

Our challenges are vast--and loom not distant, but close. Playing out the empty steps of ritualized dances won't solve them. Hence, a tiny conclusion: perhaps it's time for the audience to desert the performance.

The great shift the global economy must make is from a paradigm of opulence to one of eudaimonic prosperity. Endlessly repeating yesterday's dilemma-ridden debates--to the point of ritualizing them--isn't good enough to get us there.

Is "Finance" a Cult?

2011-07-22T02:17:00.000-07:00

In the last post, I suggested that modern-day "finance" as we know it has little to nothing to do with (real) economics. Where economics is about creating authentic value, igniting positive sum games, discovering pathways to prosperity, finance is (or has become) about reshuffling yesterday's value, extracting the lion's share in zero sum games.

Yet, the self-appointed sheriff of the global economy--the master "trader"; in reality, a mere jumpsuited technician of a lethally dysfunctional machine--is viewed as the modern-day equivalent of a mystical seer, a Delphic oracle, whose visions earn the indisputable right to luxuries and riches beyond the most avaricious dreams of the kings of yore.

All of which raises the question: if modern-day finance isn't (about) economics, then what is it? I'd like to suggest it's nothing more than--and nothing less than--a cult.

Consider, for a second, a quick list of characteristics of mind control techniques that cults use:

"Studies performed by those who believe that some religious groups do practice mind control have identified a number of key steps in coercive persuasion:[31][32]

People are put in physical or emotionally distressing situations;
Their problems are reduced to one simple explanation, which is repeatedly emphasized;

They receive unconditional love, acceptance, and attention from a charismatic leader or group;
They get a new identity based on the group;
They are subject to entrapment (isolation from friends, relatives and the mainstream culture) and their access to information is severely controlled.[33]"

Let's go through each one by one.

People are put in physically or emotionally distressing situations. Does the edifice of modern-day finance put people in emotionally and physically distressing situations--moreso than they have to be, to amplify the stakes? In fact, it puts entire nations and regions in them--just ask Europe, America, or China. The cries of "Panic!! Armageddon!!" that every minor question or challenge to the cult of finance are met with are a form of inflicting distress--as are the constant looming threats that "the markets" will eternally, hellishly punish those who fail the test of virtue.
Problems are reduced to one simple explanation, repeatedly emphasized. Does the monolith of modern-day finance reduce problems to one simple explanation, repeatedly emphasized? Sure: it's the idea that I've called financial determinism--that through unfettered financialization (read: bigger banks, funds, faster trades, more intense buying and selling of paper) the world's challenges can be surmounted, and humanity's biggest problems solved--and that conversely, without hyperfinancialization, humanity has little chance at prosperity. Simply put: more finance, good. Less finance, bad. Would that the world were so naively simplistic.
They receive unconditional love from a charismatic leader. One word: Geithner. Kidding aside, the point is: the cult of finance has a set of leaders--leaders who show cult members a level of unconditional love that's truly breathtaking, that makes religious cult leaders look like misers. Bailout after bailout after bailout for blowing up entire economies? Now that's unconditional love.
They get a new identity based on the group. Does modern-day finance create "a new identity based on the group"? I think so. Once you're a member of the cult of finance, the kid gloves come on. You're essentially above the law, beyond the state, and through the looking glass. And I'd guess that might be behind the curiously overweening sense of power most of the members of this cult display: the off-the-cuff remarks that bank chiefs make, for example, that are farcically absurd (when they're not savagely dehumanizing)--like Lloyd Blankfein's famous claim that Goldman Sachs is just "doing God's work".
They are subject to entrapment, and their access to information is severely controlled. Does modern-day finance create situations of entrapment, and control access to information? Of course--it's entire "business model", as anyone who's spent more than a day or two inside an "investment bank" is premised on hoarding, restricting, limiting, and squeezing information--and so literally keeping nations and corporations, CEOs and prime ministers in the dark. This point is indisputable, given the steep rise over the last few decades in revenues from trading--and the not-so-secret secret that much of that trading revenue is based upon a whisper circuit of quasi-insider info. The cult of finance is premised fundamentally on sophisticated tools to erect barriers to information at every pass--that's exactly what shadow banking is.

I could go on, but perhaps my point is clear. "Finance" as we know it serves little social purpose; instead of a socially useful activity, it's a self-destructive one for nations to encourage and subsidize.

Less a legitimate collective interest in the pursuit of prosperity, "finance" bears all the hallmarks of a quasi-religious cult--a "hypermachine" whose goal is to, at all costs, enforce loyalty to a fantasy of divine salvation (with lurid threats of eternal punishment and foregone salvation), dictated from on high by charismatic leaders, on whose tablets are inscribed a set of commandments that are nothing but a tightly controlled system of organization that uses simplistic, lowest-common-denominator techniques of social domination and psychological subjugation to sharply circumscribe the boundaries of human freedom, responsibility, and growth.

It's got little to do with economics, prosperity, and humanity--and a whole lot to do with big, fat, dirty money.

Oh, hi--welcome to the Great Stagnation. Want fries with that cult membership?

The Cult of the Financial Hypermachine

2011-07-22T00:04:00.001-07:00

There's a virus spreading across the globe--the carrier of a new cargo cult of long-sought-for deliverance. Let me explain what I mean by that.

What just happened in Europe? Another no-strings-attached bank bailout, with zero structural or institutional reform.

French and German banks were let off the hook (those that argue they're "taking a hit" are badly mistaken, and need to revisit the basic math of finance 101: it's not the unadjusted NPV that's at issue, it's the risk). Greek banks were partially recapitalized. All this with little regard for a mechanism to actually discover the magnitude and duration of toxic "assets" and hidden liabilities on and off the books.

In exchange for the concession of recapitalization and rescue, reform is often a precondition. Says whom? Well, for example, the IMF. When countries are "rescued", the cost is often steep: onerous reforms not just to the public purse, but, more significantly, of public and private institutions.

So here's what's really curious: over the last half-decade, we've had bailout after bailout sans accompanying condition for reform. Europe's latest bailout is just another example. Absolutely zilch of the institutional or structural reform Europe needs has begun--let alone carried through in this package. For example, the Euro either needs supporting fiscal institutions, or more flexible, decentralized "central banks". Germany needs major structural reform to halt wage repression, and provide the consumer spending necessary to begin shrinking Eurozone imbalances. Greece needs severe structural reform to fix it's tax shortfalls and labor market rigidities. But this bailout package is just a simple, uncomplicated transfer of wealth--not a mechanism to accomplish any of the above.

Here's the real problem.

Finance (as it's practiced by today's charlatans) has little to nothing to with economics. Economics is about creating real value, igniting positive sum games, discovering a lasting prosperity. Financial engineering, about reshuffling and shifting yesterday's value around, about zero-sum games--and a cynic might even say: it's about extracting the lion's share of value.

One--economics--is a philosophy and a paradigm both. The other--modern "finance"--is more a cult. Like the belief systems of most cults, it requires constants acts of faith, demanding, self-destructive rituals of devotion--to prove one's faith in an illusory moment of divine deliveration, that recedes hazily ever further into the distance. The last half-decade's series of bailouts, and their accompanying faith in a magic moment when prosperity would reboot itself, resemble nothing more than the Rapture--always promised, never apparent--when, that is, they don't resemble Sopranos-style extortion.

This is the great disorder sweeping through the political, economic, and social systems of the globe--a disorder of faith. Homage to a new religion, a pandemic of faith in a set of gleaming idols, beyond man, state, law, and reason--the glittering glass and rounded steel of the post-democratic financial hypermachine. At it's silent door, mystical incantations are recited, wounds begged to be healed, contrition pleaded for, redemption sought.

The feckless think: the blank stare of our idols is a symbol of their promise. But the problem with totems of our own creation is that they're not real; that they don't have magical powers; that underneath the paint and the incense, they're just empty promises and old wood. Usually--like this time--their gaze carries little more than indifference. For humanity, the globe, and the future.

Questioning The Dogma of The Church of Wall St

2011-07-13T10:41:00.001-07:00

So how did we get into this Great Stagnation? I'd say beyond mere techne, past formulae and financial models as invalid, inconsistent, and unreliable as a water-pistol in a 24th century gunfight, lies a deeper truth: mindset and paradigm--that have ossified into dogma and doctrine.

The seeds of this Great Stagnation were sown, I'd suggest, in no small part by what you might characterize as financial determinism. If I had to pin down the components of this system of thought, this mindset--literally, as in "iron cast around said mind"--I'd say a rough first approximation is as follows:

1. That the quantity of prosperity is proportional to the intensity of financialization. Think: a billion trades a nanosecond, more net benefit to society.

2. That the intensity of financialization drives the efficiency of markets. Think: a billion trades a nanosecond, the better, fairer, and faster markets do the hard "work" of allocating society's hard-won resources to their most (socially) productive uses.

3. That enhancing the efficiency of markets is society's inherently, absolutely most valuable--and hence highly rewarded--activity. Think: a billion trades a nanosecond are worth more than a billion disruptively great idea.

The problem, of course, is that financial determinism is not just still with us--but dominates the logic of the punditocracy, the academy, and echo chamber formerly known as the fourth estate. Turn on the news, grab your iPad and read the paper--and more often than not, though politicans and central bankers alike might be debating "fixes" to the crisis du jour, said fixes share the assumptions of financial determinism (just like the many bailouts at the height of 2008's financial crisis did--"rescuing" a broken financial system by creating even more complex CDOs on the public balance sheet). Hence, not only are today's policies usually both toothless and long-run senseless; as an unintended--if entirely predictable to those not steeped in the mindset of financial determinism--consequence, they end up generating yet another crisis, faster. And, most troubling of all, of course, they do little to nothing about real prosperity that matters in human terms: welcome to stagnation.

Yet, if yesteryear's great crisis teaches us anything, it's that the tenets of financial determinism are more stubborn dogma and unyielding doctrine than absolute truth or glimmering illumination--each one has been, if not thoroughly discredited, at least a little bit tarnished.

Mindsets, as Kuhn and Lakatos noted, presdispose us to conclusions, by limiting the questions that are considered "valid" or "meaningful" to ask. Financial determinism limits us from asking questions like: "Does financial prosperity matter? To whom does it matter? How much is it worth? What supports and underpins the foundations of finance? Can the assumptions of proportionality and intensity be unfounded or even violated? In 'finance', are there normative boundaries and priorities that count--if any? Is 'financialization' necessary and sufficient for an optimally tuned economy--if parts of that economy are composed of untradables?"

We've spent the last several decades sweating and straining not to ask the questions above. And the result is plain to see: an economy that's hyperfinancialized, where trading and flipping are hyperliquid--but one where hyperfinancialism has come at the expense of the real economy, at the price of gains and benefits that endure, last, multiply, and matter.

It's time to get a little heretical--and start asking bigger, better, more relevant questions. Call me crazy, but I'd suggest: more, bigger, faster, cheaper, nastier financial markets probably aren't the answer to the problems plaguing the global economy. Examined under a magnifying glass, the global economy bears a striking resemblance a giant CDO wrapped in toxic currencies covering up the rot of stagnation. Thanks, financial determinism--it might just be high time to begin questioning yesterday's tired, toxic dogma, and construct a mindset better built for the challenges of the 21st century.

Please note: I'm not suggesting that "finance doesn't matter". But I am suggesting that a purely deterministic, mechanistic, linear, equilibrating, almost-Platonic mindset where finance, like an idealized engine, is the single, sole, most vital, and irreplaceable source of the horsepower of prosperity--well, that might just be the single greatest mental barrier to human progress in the 21st century.

The Weekly Awesomeness, July 11th

2011-07-11T07:12:00.000-07:00

OK. Enough with biblically apocalyptic sureties of the global economy, society, and culture going to hell in a handbasket faster than you can say "macroprudential regulation".

Let's hear about what's world-changing, humanity-benefiting, just plain awesome.

You know the rules:

1. You can share an example of anything--company, policy, product, social enterprise, book, tweet, idea.

2. It has to be awesome.

3. See rule 2.

Why America's Not Creating Enough Jobs--And How to Fix It

2011-07-11T04:20:00.000-07:00

What's really going on with jobs in America today? And what does it mean for prosperity tomorrow?

Here's a new take, by the Kauffman Foundation

"New research released today by the Ewing Marion Kauffman Foundation suggests that the country faces a far more fundamental employment challenge that pre-dates the recession by many years: A long-term trend that the researchers call a slow jobs "leak."

In short: America's labor markets are creating too few jobs, a shortfall of about a million right now--and it's a malady that began well before today's crisis, and one whose trajectory points downwards.

As I've suggested, the real crisis isn't financial. It's institutional. It hasn't been years in the making, but decades. Real wealth creation--when you add back undercounted costs, and subtract overcounted benefits--that matters in human terms peaked around 1970. It's a story of decades-long decline--of a dysfunctional economy, whose engine of prosperity has sputtered out.

We can filigree and shadow the Kauffman Foundation's sketch with details. When jobs are "created", more and more often, they're low-wage, low-skill, no-future, zero-fulfillment McJobs. When jobs are "destroyed", they don't reflect punitive measure against C-suites who've driven entire industries to breaking point.

Consider, to make the point, a little factoid you won't hear in most of the financial or business press. The fastest growing category of employment gains over the last year, once subsidies and bailouts are stripped out? "Administrative and waste services". Sound like a recipe for prosperity to you--or a recipe for a nation of janitors, maids, and "assistants", hurriedly scurrying after a tiny number of imperious plutocrats?

So where will prosperity come from?

Our jobs engine is broken because our institutions are. We can't create 21st century jobs because we don't count 21st century costs--and so ask economic entities, whether banks, investors, or corporations, to "pay" them, to reward other economic actors for minimizing them, igniting a new source of demand for more labor, better skills, new industries, smarter ideas. If we're not counting 21st century costs, then the endgame is that markets fail to allocate resources--like labor markets fail to allocate people, creating a rising tsunami of unemployment--to today's most productive and useful activities.

It's not America that's got a job creation problem--it's industrial age capitalism that does. All we're doing is shifting the same pool of industrial age jobs around the globe, to the lowest bidder.

It's not rocket science. But seeing the real problem--and fixing it--might mean it's time to start having a better, smarter debate.

The Invisibility Subsidy

2011-07-10T06:20:00.000-07:00

Somehow, the unemployed became invisible--according to the NYT. An astute observation.

So how did it happen--the "somehow"? Here's exactly how. Human costs--especially the costs of human potential foregone--aren't counted, much less conceived of, conceptualized, operationalized, aggregated, measured, modeled (technically, they're shrouded costs--costs veiled today, which suddenly hit us tomorrow).

The result? An economy that's massively subsidized. One where mass long-run unemployment can spike beyond record levels, and stay stuck there, where the vast majority of people are stuck in dismal, dead-end McJobs that offer them little security or stability, much less fortune, fulfillment, joy, or meaning--while corporate "profits" boom, as central banks prop up financial and product markets of every variety.

Here's a better idea: Let's stop pretending that millions of unemployed aren't a drag on the economy--and that the waste of their human potential isn't a terrible, awful cost. Let's start trying to conceptualize it economically, and get serious about understanding what it's real long-run costs are--so we can then strive to optimize against them, instead of merely trading increased unemployment for larger corporate profits. Those, because we're just giving with one hand, and taking with the other, are just a financial fiction--not an economic reality (the reality is simply that we're supporting financial markets and product markets at the expense of labor markets--but it takes all three humming in harmony for an economy to yield real gains).

Let's stop pretending that failing to seed, nurture, and harvest human capital isn't a very real cost that today's economy will pay tomorrow--and let's not just banter about it, but let's hardwire those 21st century economics into every single one of our institutions.

Then, once we know what this massive waste really costs us, let's try, with new economic fundamentals, to minimize of much it as is economically beneficial--with better institutions, that set incentives for investors, corporations, non-profits, and governments to begin working together to "employ" people--not just "give them jobs", but help develop their latent talents, and invest in their own human, intellectual, and social capital. That's probably the only way America's going to build the muscles it needs for 21st century prosperity.

Humanity is invisible to economics as we know it. Until and unless humanity is central to it, there's little chance of escaping the mess we're in.

Now, let me gently point out that I've been saying this literally for years. As have many others. But we're still stagnating. Why? Maybe a tiny part of the answer has to do with the media's focus on yesterday economics, and their flat refusal to engage with people who are challenging the status quo. Hence, a steady barrage of articles that seem stuck in yesterday's narrative--and a little bit unaware of about, well, what to do about it.

Sculpting the Building Blocks of 21st Century Prosperity: Reinventing Productivity

2011-07-10T05:11:00.000-07:00

In the last post, I discussed why rebooting prosperity is probably going to demand new economic building blocks--what I call new "economic fundamentals", or updated conceptions of productivity, efficiency, effectiveness, and the like.

The short version is: these fundamentals were imagined during and built for the industrial age--and if they're what our economy's institutions (whether banks, corporations, credit ratings, etc) perpetually optimize for, then the present we've got is pretty much the equilibrium we've reached: welcome to the no-future future.

The fuller discussion of my take on a new set of fundamentals is in my new Manifesto--they're far from the only ones, or the right ones. Whatever "we"--as in society--decide 21st century economic fundamentals should be, how might we imagine them coming to life? Let me try and draw a portrait not merely of a theoretical economy in a model, but of the economy as it works, so you have a clearer picture of the scale and scope of transformation that might be in store for us--using one fundamental, productivity, as the subject of the portrait.

Who, for example, computes the generally accepted measures of industrial age productivity, and places them on the public record? In America, it's the Bureau of Labor Statistics. What the BLS is tasked with is calculating and reporting on labor productivity (and, secondarily, TFP, or black-box technological productivity). Labor productivity, can be defined and measured per capita, in aggregate, in nominal terms, in outputs terms, and much more. The point is that the BLS takes on the (still mammoth) challenge of conceiving and calculating what the economy's productivity is--but that it's definition of productivity is still one at home in the 19th century, and out of place in the 21st: how much industrial output labor can literally produce--literally, widgets per worker-hour.

If you accept my notion that it's time to update productivity to encompass not merely how much toxic mass produced junk we churn out, faster--but to reflect whether or not said junk actually makes a difference to how meaningfully well our lives are lived--then perhaps a next-generation BLS's job isn't merely computing labor productivity, but socio-productivity as well--and making the figures public every month, quarter, and year. If it were to do that, I'd bet our economy would spin on it's very axis: the numbers we use to track its health, gauge its performance, and that Wall St uses to (mis)allocate our hard-won capital would all be dramatically altered--the informational structure of incentives would shift, and the great gears of prosperity might find a newer, more, well, productive, rhythm--because we'd optimizing not just for the greatest amount of industrial age junk to line the bleak exurban shelves, but for groundbreaking, socially useful breakthroughs.

But the BLS is far from the only organization in the economy that's tasked with ascertaining and divining productivity. Who else does it? Pretty much every medium to large to jumbo-sized corporation--not to mention giant robotic consultancies, and most zombie investment banks. All have economists, or close enough analogs thereof, to calculate productivity inside their own organizations, in their industries, for their clients, or across the economy--and not all their methodologies are the same, nor do they always agree. For example, it's not hard to imagine a consultancy telling it's clients that their socio-productivity was "best-in-class"--only for a bank's equity researchers to flatly contradict this "finding". So far from suggesting that there's only one way to reimagine economic fundamentals, I'm suggesting there are many possible approaches to reimagining productivity.

What's important in this mini-portrait of a 21st century economy are three things. First, that the measures of next-generation productivity computed by the public and private sector sync and link up in some meaningful way. Second, that the nationally recognized figure for next-generation productivity has both authority and credibility (just as today's BLS figures for labor productivity do). Third, that the national figure isn't just arrived at by summing up everyone else's productivity figures, but is independently computed (unless you want a mega Enron).

Here's my point.

This a moonshot for the 21st century. And it's the kind of moonshot that America needs to get lethally serious about taking on--now. Because, as I'll discuss in future posts--other, smarter nations are already building tomorrow's institutional rockets, and fuelling them up.

Economic fundamentals aren't God-given. They're human creations. If we have the wisdom, courage, hunger, and self-belief--we can build better ones. If we don't--this Great Stagnation probably is the future.

The Building Blocks of 21st Century Prosperity

2011-07-09T04:20:00.000-07:00

Many of you have been pressing me for "solutions", and my response tends to be "how about checking out my new book?". So perhaps I'm not discussing it enough. Hence, let me take a few mins to outline one of the bigger ideas in it: reimagining what I call "economic fundamentals".

What's this crisis really about? I argue that it's not a liquidity crisis, or a solvency crisis--as most central bankers, prime ministers and presidents still do. It's nothing short of an institutional crisis. When you look around, it seems that most of our institutions (everything from banks, to "the corporation", to "boards", to "equity", to "GDP") are fatally, irrevocably broken--in the sense that they seem incapable of seeding capital, allocating it socially usefully, or renewing it. Hence, a Great Stagnation--instead of an unfurling prosperity.

So how do we being reinventing these broken institutions? Is it even possible to do so? I believe it is possible--and that today's economic renegades are already taking on the challenge. In the Manifesto, I suggest that to unearth some design principles for next-generation institutions, think backwards and reason forwards. What's the point of yesterday's institutions? Well, they optimize for industrial age conceptions of what it means to prosper: the now-familiar productivity, efficiency, and effectiveness.

I call these building blocks--efficiency, productivity, effectiveness, etc--"economic fundamentals". And the debate we should be having today--if igniting prosperity is our goal--isn't about stimulus, cuts, deficits, and budgets, but reimagining and reinventing our economic fundamentals.

Let me explain. The problem is that yesterday's economic fundamentals are, in their very essence, industrial age concepts, measures, and techniques. Think about it for a second: productivity is still seen to be the fundamental determinant of corporate and national prosperity. But it's just a measure of how many billion mass-produced, homogeneous, lowest-common-denominator widgets can be churned out, faster. The same is true for efficiency--it's just a measure of how much drab, dismal industrial age stuff can be churned, cheaper.

Hello--it's the 21st century, not 1856. See the problem? We're still optimizing for 19th century prosperity at the dawn of the 21st. But today's economy is very different from yesterday's, in terms of its resource constraints, capabilities, structure, needs, wants, and demands. While yesterday, productivity and efficiency led us to build a roaring economy, hell-bent on furiously mass-producing the drab, toxic junk of the industrial age, today, they might just be working against us. An overweening focus on efficiency has led us to hollow out our resource based, deskill workers, offshore to nations that can play the efficiency game even more ruthlessly--for stagnating wages. The resul of all the above? The people formerly known as the middles class today don't have the spending power to make the economy hum. Conversely, the never-ending pursuit of productivity has led to people working longer and longer hours, endure more and more financial insecurity (because you're only worth as much as your latest quarterly results in productivity-world), to create more and more incremental, humdrum stuff (played the latest edition of Madden Football 14 yet? Seen the latest Saw 9 yet?)--all of which is worth little, if anything, that matters in human terms.

Hence, it's time to take a quantum leap to more nuanced, sophisticated conceptions of prosperity--that don't just optimize for industrial output (whose mightiest peaks we've already scaled), but optimize for people living meaningfully better. I'd suggest it's time to shift to socio-efficiency, socio-productivity, evolvability, and socio-effectiveness, to name just a few--updated conceptions of what the point of an economy is.

Now, if you want the full explanation of my take on the new fundamentals above, grab a copy of the Manifesto. The short version is: want to master the art of designing 21st century institutions? Start backwards: not by debating, for example, who'll be the "chief", or what "products" they should offer--but what their point is. If the point of a financial institution, for example, isn't just productivity (ie, churning out 5 billion toxic CDOs this quarter, instead of 4 billion last quarter)--but socio-productivity, well, then, said institution's going to demand very different kinds of people, resources, structure, and strategy. And the same holds true not just for a company, but for an entire country,

It's time to stop having an industrial age debate--cuts, deficits, stimulus, and the like (we can have that debate until we're right back to hunting with stone axes). It's time to start reconceiving and rebooting our economic fundamentals instead. Because, of course, cuts, deficits, budgets, etc are just a superficial, transient effect of the fundamental building blocks an economy's built on--and for.

This crisis is about institutions--and without better ones, designed for bigger, better purposes, built on stronger economic fundamentals--it's not going away, despite what your friendly local investment bankers might tell you, anytime soon.

Next post, I'll discuss the where and when of reimagining new economic fundamentals. And don't forget to share your thoughts in the comments.

Daily Awesomeness--Weekend Edition

2011-07-08T10:48:00.000-07:00

OK. So many of you have been on my case for "negativity". Personally, I think you might have a mild (or maybe severe) Reality Deficit Disorder, given the state of a fracturing, stagnating global economy.

But no matter. Let's try something new. We'll do a Daily Awesomeness, for the positivity fans. Here's space for you to add, in the comments, links to stuff you want to share that's awesome, positive, optimistic, hopeful.

It can be anything you like--a business, a product, a social enterprise, a policy, an idea, a book, a paper, a tweet, whatever.

I'll only offer three very loose criteria.

1. It has some link (no matter how tenuous) to the state of the stagnating global economy.
2. It offers some perspective (no matter how tiny) on how to fix it.
3. It's novel, interesting, and worthy of our collective attention.

Fair enough? Good. Now go for it--have at it in the comments. What's awesome?

Chermany, the Opulence Bubble, and the Great Stagnation

2011-06-26T04:44:00.000-07:00

The Future of Innovation

2011-06-15T11:40:00.000-07:00

I was very kindly innovated to Laredinnova in Madrid, but unfortunately couldn't make it--so I made a little video for the conference instead. It's about the past, present, and future of innovation--and what it just might to take to shift human achievement into a higher gear for the 21st century. Enjoy!!

Video: Building a 21st Century Economy

2011-06-04T06:24:00.000-07:00

I was very kindly invited to TEDx Oxbridge, but couldn't make it in person--so made a video instead, that was shown live. Here it is--and many thanks to the organizers for what I've heard was an awesome event!

Why Creating The Future Means Reimagining the Present

2011-05-28T05:39:00.000-07:00

It's the oft-unspoken thought on many lips: America's in decline. The glory days are over, the train's left the station--welcome to what Tyler Cowen and I have called a Great Stagnation. So: is this a great decline? I'd suggest that when you take a hard, serious look into the economy--when you voyage past it's superficial, largely irrelevant position in terms of budgets, "gross product", or "unemployment"--today's malaise is deeper and darker than pundits, beancounters, and politicians think, want to admit, or even suspect.

There's no recovery because it's not a "recession". I'd like to suggest the economy's not just damaged--it's broken. Today's stagnation is a story of structural decline: a decline that's hardwired into gears of this great machine. They've settled, over the last three decades and more, into fundamentally bad, toxic equilibria--where speculation precedes investment, model precedes reality, management and financial jargon is a substitute for real insight, cheap talk substitutes for hard work, and indulgence has replaced inspiration.

Here's its story.

Trade structure. America's trade structure is, of course, bent entirely out of shape. But the deformity is structural: imports outweigh exports not just today, but over decades--because the economy's engine is consumption. That's hardwired, institutionalized, into the fabric of global trade agreements--that make it eminently possible, sometimes even desirable, to make, market, and sell hypercommoditizing junk artificially cheaply (think, for example, "low-cost labor pools" as "comparative advantage". Oh, wait--you mean sweatshops?). And, of course, without concern for the destabilizing imbalances that pile up--and sometimes pop up.

Industry structure. The structure of most American industries is significantly distorted, from welfare's perspective. Largely artificial entry and exit barriers--like patent thickets, copyright litigation, or "off-balance sheet" gimmicks--concentrate market power, and flatten relative competitiveness. It's the resulting competitiveness gaps that are the real root of a global race to the bottom--think about it: instead of amplifying competitiveness, the parlous state of American industry means that no one's racing to the top.

Market structure. The effect of poisonous industry structure is a poisoned market structure. In industries as different as autos, banking, pharma, food, retail, and media, relentless, vicious consolidation has been the name of the game. The result is a heavy dose of heavily concentrated industries--and while that's good for beancounters, it's terrible for innovation, basic quality standards, customer service, and, of course, investors. These are all basic, real-world manifestations of a lack of what you might call next-generation competitiveness (not merely in terms of industrial age productivity--how much junk can we churn out, push-market, and hard-sell, how quickly-- but in terms of socio-productivity: how much stuff can we create that actually solves worthwhile problems? how much "impossible" stuff can we imagine, design, and create?)

Economic structure. In turn, oligopoly tomorrow's industries don't get created yesterday. Consider a jaw-dropping statistic. In 2010, Chinese companies: 391 I.P.O.’s, worth $89.5 billion. American companies: 99 I.P.O.’s worth $15.69 billion. That's not just parlous--it's frankly pathetic (and remember, China's not innovating yet--it's mostly privatizing, selling off relatively small stakes in state-controlled, quasi-governmental entities) Translation: the structure of America's economy is broken. Value added, like profitability, is concentrated heavily in finance--to the exclusion of productive industry. Remember, of course, that finance isn't productive--it's allocative. (Think about it this way: a global economy of N-1 traders and a single producer probably would be radically less productive than vice versa). Hence, manufacturing being offshored--but only low-value services (think lawnmowing) replacing them.

Employment structure. The result of a broken economic structure, where yesterday's doddering industries age on into non-oblivion is an equally broken employment structure. America's creating two kinds of jobs: McJobs and MegaJobs--with nothing in the middle. And, of course, there are deeper problems with both. The MegaJobs are more like lottery tickets, than prizes in a meritocracy (think landing a spot at a top law firm, or investment bank--it's more about who you know and where you studied, than what you can do). And the McJobs, of course, vastly outnumber the MegaJobs--and worse still, they're total dead ends: offering zero prospect for "skills gains", or, perhaps more vitally, to grow any of the many kinds of intelligence.

Demand structure. Result? A eviscerated structure of demand. The middle class has been under the assault of all the above--which smash their welfare--for decades. The outcome is an economy where savings rates are spiking upwards, and their mirror rate, consumption rates, spiking downwards. Of course, that shift is being mirrored by corporations as well--as it must be. The next step, of course, is shifting those idle savings into investments. Not, remember, the mere idle speculations of yesteryear--which led to bubble-driven malinvestments, like McMansions that are being torn down. Real, long-run investments, that yield enduring, meaningful returns.

Incentive structure. To get there, we come to the final piece of the puzzle. America's incentive structure is completely broken--courtesy of an obsolete set of institutions, like industrial age GDP, which set the terms for rewards earned through socially useless or destructive activities (like the stuff above). Execs book benefits with having to create anything of demonstrable, long-run benefit to, well, anyone--and when you aggregate all those transactions up, you get a Ponziconomy. One where it's possible to "profit" without having done anything of enduring value. Of course, in such a situation, my "profit" represents no net gain--just a transfer from you. When we're all "profiting" that way, we're just playing musical chairs--moving the same old dwindling pot of wealth around, instead of adding a penny or two back into it. Result: decline.

I could go on, with fix or six additional structures. Or a boatload of numbers. But perhaps I've made my point.

America's great decline is the emergent product of a set of toxic equilibria. The sum is greater than the whole of the parts: this decline is a complex, nonlinear combination of interdependent, linked components settling into an unforeseen level of breakdown. You might say it's the dynamic equilibrium of a complex system, akin to an attractor, where the economy's stuck in a corner of performance space that limits long-run value creation to dwindle ever further.

Hence, I'd suggest a simple, but perhaps radical, conclusion: it's learning to invest in companies, ideas, and insights that break all the bad equilibria above that will separate tomorrow's outperforming [countries, companies, and investors] from those stuck in the structurally shattered gears of a great decline. We've got to take a quantum leap in terms of imagination--to seed and ignite stuff that has the power not merely to jumpstart a sputtering economic engine--but to fundamentally restructure and redesign it.

NB--This is an update of an essay originally posted last November. If you think it's held up...exactly.

How (and How Not) To Change the World

2011-05-25T04:22:00.000-07:00

Let's try a little experiment. Let's make a list of stuff that you and I think has the potential to change the world--and stuff that doesn't (that's more hype than reality).

This is an open thread, so please take a sec to share your own take.

Here's my very quick 5 min take.

Stuff that probably won't change the world radically for the better:

"Social Media"--at least in it's current incarnation, as a tool to push more toxic junk at you.
"Innovation"--at least as we practice it. It's a living embodiment of the Opulence Bubble
"Self-help"--I use the term loosely, to cover all the volumes of stuff that's there to help people deal with the economic and psychological fallout of living meaningless lives.
"Economics"--at least as we know it. It's foundational assumptions need reimagination.
The (mostly) rich (mostly) dudes that run the world. Because insiders never topple the status quo.
China's noble quest to be the Mall of America 2.0.

Stuff that might:

Social entrepreneurship.

3D Printing.

DIY bio-hacking.

Financial engineering (applied to real problems, not just giving psychopaths bigger bonuses.)

America's quest to redraw the boundaries of human freedom (yes, for all it's many sins).

Self-organizing communities of resistance and disobedience.

Reclaiming your humanity.

Thoughts? Fire away in the comments.

The Big Squeeze (Or Why You Should Kiss Your Future Goodbye)

2011-05-25T02:06:00.000-07:00

"The west's leading economic thinktank warned the Bank of England on Wednesday that it would have to start raising interest rates this year to prevent inflation taking hold in the UK.

In a downbeat assessment of the prospects for the economy, the Paris-based OECD said Threadneedle Street would have to steadily increase borrowing costs over the next 18 months despite the weakness of growth."

I want you to have a crystal-clear understanding of exactly what's going on above, and why it's the economic equivalent of setting fire to the future. You can substitute the word America for the UK below if you like, it's the functional equivalent.

1. Both the OECD and the Bank itself have publicly called for 18-24 months of sustained rate increases. My guess is that means rates end up around 4-5%.

2. Think about what a 5% interest rate probably means for the average Joe and Jane's mortgage payments, various other debts, 401K, net worth, etc. It means they will be financially decimated, snapped like twigs. As nth-order consequences, it means, roughly, that unemployment will spike as demand implodes, polarization will grow, etc.

2.5 It's another de facto bailout in disguise--and the spark for yet another round of mass malinvestment all at once. Nice, right?! Higher rates mean more funds flowing through the financial sector, more savings--all for your local friendly banker to pump, dump, misallocate, and malinvest (and earn billion dollar megabonuses for doing so).

2.75 Call it the Big Squeeze--because what it really means is that middle classes are going to be squeezed out of existence, as wealth is transferred upwards, to plutocrats. Real incomes will decline, and net worth will implode (not just in the abstract sense--yours). You'll be forced to save--and then, every last bit of savings that you had will be wrung out of you. I'd say something like "millions will be plunged into (greater) relative impoverishment and penury", but that...already happened.

Seeing just how bad this is yet? No, you're not--because it gets so much worse.

3. Rising interest rates have close to zero chance of quelling short-run inflationary pressure in developed countries--because it's a function of spiking demand for basic commodities (etc) globally. Do you think the Bank of England's 5% rate is going to make India and China demand less...cement, oil, or steel? Nope. It's a little bit like shooting yourself in the face with an explosive bullet because you broke your little toe.

3.5 You do not raise interest rates in the face of a negative aggregate demand shock (effectively, it means the price of money has already imploded, Keynes, etc). This is Macro 101. Hence, the real problem is that mental models (like "economic models") are mired in industrial age assumptions.

4. Conclusion: Britain's economy is already stagnating, a tiny version of the role model it fetishizes, America. A sustained series of rises is going to (obviously) plunge it into a catastrophic breakdown.

5. Want fries with those mass riots?

6. Endgame: stagflation of the kind that's probably going to make the 70s look like good times.

6. There are smart ways and dumb ways to pop the Opulence Bubble. And then there are (to be kind) astonishingly stupid ways. Guess which one this is?

7. You should be angry about the chain reaction of catastrophe that's being silently, deftly woven into your future. You probably won't, because you're too busy chomping down on McBurgers and hurf-durfing over the latest Jersey Shore. Your future's being not just stolen--but stolen under your very nose. I won't hold my breath waiting for the victim to take it back.

The Top 10 Economists on Twitter

2011-05-24T17:38:00.000-07:00

Hey, look--I made it onto Tim Harford's list of top 10 Twitter economists. Coming from one of my favourite authors and thinkers, that's an honor! Especially since I'm sure a raving philistine like me doesn't deserve to be in such august company:

"Twitter’s top 10 economists (17 May 2011) (previously)

@CMEGroup Chicago Mercantile Exchange 783,327 followers
@NYTimesKrugman Paul Krugman, Nobel Laureate & columnist 594,331 followers
@andrewrsorkin Andrew Ross Sorkin, NYT Dealbook 372,242 followers
@freakonomics The Freakonomics blog 331,018 followers
@WSJ_Econ Real Time economics from the Wall Street Journal 214,778 followers
@planetmoney NPR’s Planet Money 191,244 followers
@umairh Umair Haque, HBR 146,450
@Richard_Florida Richard Florida, Urbanist 122,963
@PKedrosky Paul Kedrosky, Financial commentator 120,287 followers
@nouriel Nouriel Roubini, Economic forecaster 49,501 followers"

Check it out (and check out his super-sharp new book while you're at it!! :)

Defaulting on Opulence: A Dominant Strategy?

2011-05-24T17:10:00.000-07:00

The Guardian's Aditya Chakrabortty raises a very interesting point:

"Default or debt restructuring is a dramatic economic and social event for the country which experiences it – I would call it political 'suicide'– which leads many into poverty."

What's wrong with this argument? Well, to use a technical term, it's balls. More precisely, it's the sort of everyone-says-it-so-it-must-be-true balls that's been a hallmark of European policy-making ever since the banking crisis broke out.

...At its best, this is economic diplomacy by euphemism; at its worst, it is pin-striped loan sharkery. Either way, what's largely missing from this debate is any discussion of what the evidence shows for countries that do default. Which should perhaps not come as a surprise because, if it were more widely disseminated, voters in Greece, Ireland and Portugal might well be calling far more loudly and confidently for their governments to renege.

Over the decades, economists from Ken Rogoff to Barry Eichengreen have queried the notion that default is, to use Bini Smaghi's term, "suicide". But the best recent paper I have come across on the subject is from October 2008, just after Lehman Brothers collapsed, and was written by Eduardo Borensztein and Ugo Panizza at the International Monetary Fund. Given that the IMF spends most of its time telling bust governments to keep to the path of fiscal rectitude, you might expect these two to write about the dangers of default. Far from it.

First, Borensztein and Panizza put together a history of countries that defaulted between 1824 and 2004. Then they look at the short- and long-run consequences of the default. Their conclusion? "The economic costs are generally significant but short-lived . . . we almost never can detect effects beyond one or two years."

...The IMF researchers show what the governments of Argentina and Russia could tell you from recent experience: markets have fairly short memories. Even the interest rate on loans to disgraced countries falls within a couple of years from the punitive to the near-normal.

None of this is to say that national bankruptcy is as easy as checking into a spa. Angry creditors have a nasty habit of setting Manhattan lawyers on poor African countries if they think they stand a half a chance of getting their dollars back. But coming clean and admitting that you can't pay your loans is a viable option for an administration that has run out of other options."

I strongly recommend you read the whole piece: Chakrabortty's more or less in the right ballpark in both his logic and his stance. The evidence, at least according to my reading, does indeed suggest that "long memory" in the bulk of financial markets is piecemeal and happenstance at best--and that short memory predominates (no, doesn't hold always and everywhere--but tends to be the rule, rather than the exception). Short memory as in: markets don't remember what happened years or decades ago, and form what you might call long-run agent-specific adaptive expectations--expectations that say: "That skinflint? He didn't pay up last decade, and that matters--a lot"; instead, they tend to predicate their calculations the usual short-term indicators of immediate returns that we're all more than familiar with (the stuff in bankers "financial models", mostly concerned with ratios that relate incomes to outgoings at corporate, regional, or national levels). In short, markets are more forgiving than they're often assumed to be--because, paradoxically, they're too dumb to be smart.

So here we have a tiny paradox leading to exactly the kind of long-run bad equilibrium Michael Spence alludes to, that I highlighted in the last post here. If default is the dominant strategy for individual countries--because markets will punish them less than they might be expected to--then Spence's "suboptimal equilibrium" becomes a reality. You might expect a rational country to restructure or default--regardless of the contagion, or net financial externalities, to neighbors and distant relatives--triggering a wave of defaults. To, in short, take strategic advantage of the "dumbness" of markets--and pass some of the real costs of the great global superbubble of the last several decades back onto them, instead of absorbing them and passing them onto future generations.

I'd suggest that's vital, if we're to break the vicious circle of dumb growth. I'd argue that it might--and it might be the only thing that might--set an incentive for the institutional reform of markets to smarten up and develop a longer memory, which might, in turn, prevent capital from being systemically, chronically misallocated for decades in the first place. You can think of short memory as a kind of window for long-run moral hazard--which has to be closed at some point, as the potential costs of financial crisis in a hyperconnected, interdependent world spiral past the breaking point.

The popping of the Opulence Bubble, then, isn't going to be, for the global economy, a "soft" landing--or a "hard" one. It's going to be a protracted, lengthy process, that Mohamed El-Erian's recently termed, rightly, I think, "hobbling and muddling". In short, a great global game of pass the buck is already well under way--and those who fail to understand how markets really work (and why) are likely to pay a disproportionate price--one that will last decades, and hobnail entire generations.

The Game Theoretics of the Opulence Bubble

2011-05-23T05:32:00.000-07:00

Economic Principals on Michael Spence's new book--in the conclusion:

"This is a cooperative game on a gigantic scale that we are trying to learn how to play, a complex one because of the asymmetries among the players. The chances of asynchronous moves and separate agreements on distinct issues will lead to a fully cooperative outcome are very low. More likely is a non-cooperative outcome with suboptimal results and instability. A bumpy road to a new and not very attractive normal."

I strongly (strongly) suggest you consider that statement in the context of the last post, about global economy poised at the juncture of transformation. If you accept the proposition that there is an historic Opulence Bubble bursting globally, then Spence's game-theoretics offer some serious insight. A new set of global institutions, more tightly tailored for interdependence, will indeed require sustained, engaged "cooperation"--you probably can't take them alone. Of course, the paradox is that it's exactly in a situation of penury, austerity, polarization, fragmentation, and decline that cooperation is likely to implode.

A new and not very attractive normal indeed--one whose real instabilities, I'd venture to guess, we've barely scratched the surface of.

The Opulence Bubble (Simple Version)

2011-05-22T16:40:00.000-07:00

In my last essay at my HBR blog, I suggested that we're at a time of historic economic transition: a decades-long Opulence Bubble is popping.

Here's the reality, in hard, crude, rough, broad numbers (hence, this is the simple version--we'll cover the more nuanced, complex version in future posts).

What does the chart below--global final consumption relative to GDP--suggest to you?

Here's what it says to me. Since about 1970, global consumption's been spiking--reaching a historic high around 2005ish. You might say that until 2005 or so, a bubble of global--not just local--proportions was growing--fuelled by a cocktail of global macro imbalances, so-called financial "innovation", and quick and dirty "globalization".

See the peak? That's the Opulence Bubble beginning to pop. And here's the flipside.

Despite Alan Greenspan (et al)'s ballyhooed "global savings glut" hypothesis, I'd suggest the chart to the left suggests the opposite. For decades, global savings have been declining--as the globe shifted to a model of dumb, consumption-led, debt-driven growth. Though individual countries have certainly been saving more, to manage risk, like China, globally, the world's been saving (much) less.

And the corollary also holds.

Global capital formation--aka (industrial age) investment--has undergone a decades long great decline, reaching historic lows at the apex of yesteryear's big boom. That's a natural consequences of a global growth model predicated on hyperconsumption, financialization, and dissavings.

The three charts above might seem simple--perhaps even simplistic. But I'd suggest that together, if you stop to think about it, they resonantly tell the story of the global economy over the last several decades, where it went wrong--and where it's probably going tomorrow. In short, their implications just might be profound, immense, and of deep significance no matter where you are, or what you do. They imply that a titanic global reconfiguration is necessary to reorient growth--and that hopes for a quick, easy "recovery" are probably destined to founder on the rocks of the hard reality above. The above are decades-long trends that are, one way or another, cresting and breaking--and probably receding.

If global consumption (savings, and investment) have to recede to historically normal levels relative to output, then today's Great Stagnation is just a baby step: the world is on the cusp of something between a lost decade and a depression. And though we might think today that we're past the worst, that process of adjustment is likely to take a decade or more.

I'm sure you're already thinking "that can't possibly be right". Unfortunately, in the next post or two, I'll discuss why the numbers above--built on incomplete, rusting industrial age logic--significantly understate the case.

Hence, I'd suggest: we are undergoing--whether we like it or not--a phase shift from one conception of prosperity to another. It's going to require an institutional redesign on a scale that's rarely been before.