Friday, November 11, 2011

The Lights in the Tunnel

One other book I've finished recently is Martin Ford's The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. The book itself is an interesting story. Ford is a venture capitalist and software entrepreneur in Silicon Valley. He self-published this book in 2009, because, he says, developments which were plainly obvious and actively discussed in his circles in Silicon Valley seemed to be invisible in economics and policy circles. And even technology people are mostly thinking about how to get their immediate next product to market.

Now the book is getting serious attention in at least some economic circles, including respectful mention in the e-book by two prominent MIT researchers I was talking about recently.

Ford argues that the "Luddite fallacy" in economics - that technology ultimately destroys jobs - is itself wrong. Just because it has been true for 200 years, as technological advance always created more jobs than it destroyed, does not mean that will be true in the future.

One of the main reasons, he says, is technology is improving at an exponential rate. There is no reason to expect that is going to change in the near future.

Exponential growth has the property that it can appear to take a long time to get going by the standards of later growth. If you keep doubling a quantity, 2, 4, 8, growth is very rapid - but almost invisible by the standards of 20 or 30 moves later, when it is growing by a billion or several trillion each move.

Unfortunately, the purveyors of econometrics labor under the delusion that they are economists, when in fact they are historians. Statistics is well suited to measuring things which are relatively constant or which are changing gradually.

So if like a good econometrician you look back and study recent history, you may see virtually no sign of an exponential trend which will burst into almost overwheming prominence before long.

All the immense changes wrought by technology so far are just a small precursor, if advances keep going at their current rate. That's a matter of basic math.

And that means the labor market as we know it is in deep trouble, he says.

The reality is that the free market economy, as we understand it today, simply cannot work without a viable labor market. Jobs are the primary mechanism through which income—and, therefore, purchasing power—is distributed to the people who consume everything the economy produces. If at some point, machines are likely to permanently take over a great deal of the work now performed by human beings, then that will be a threat to the very foundation of our economic system.

Offshoring and outsourcing are just temporary distractions.

The point I am making here is that offshoring is really a precursor of automation. Offshoring is what you do when you have some technology, but not enough to fully automate a job. ... Offshoring is the small wave that distracts you. Automation is the big one further out that you don’t see coming.

Some of the traditional ideas about coping with change - more education puts you in a better position, or knowledge workers are the workers of the future - are also wrong, he says. Indeed, many high-skilled jobs, like radiologists, are much more likely to be automated.

Not only are their jobs potentially easier to automate than other job types because no investment in mechanical equipment is required; but also, the financial incentive for getting rid of the job is significantly higher. As a result, we can expect that, in the future, automation will fall heavily on knowledge workers and in particular on highly paid workers. In cases where technology is not yet sufficient to automate the job, offshoring is likely to be pursued as a interim solution.

Artificial intelligence and non-desktop technology like robotics are likely to be the next boom areas, he says. If the military can plan to use drones in highly uncertain and difficult wartime environments like Afghanistan, more use of robots to restock store shelves is easy. Down the line, nanotechnology is likely to deliver even more fundamental change.

At some point before long, he says, production is not going to be the problem. Consumption is. Production can get so capital intensive that a tipping point is reached and falling prices for consumer goods no longer deliver enough disposable income to other workers to raise consumption in general.

It may not be next year, or the next few years, but before long the basic job that we have known for several hundred years will be over. Structural unemployment could affect a majority of the population. At that point,

We need a mechanism that can get a reliable income stream into the hands of consumers. This of course, is a proposition that will be very difficult for most of us to accept; the idea that we must work for a living is one of our most basic core values.

What happens when technology reaches the point where most human labor is no longer essential? At that point, we will have to undergo a quantum shift in our value system. In order to preserve the free market system, we will have to come to the realization that while work (at least for most people) may no longer be essential, broad-based consumption is essential.

Is this realistic? There is no doubt that technological change has always delivered more jobs in the past. But I think we do have to confront seriously the possibility that it may not do so in the future. I found the Brynjolffson and McAfee book (linked above) very persuasive in that regard. Prices may not fall so low that it is profitable for some entrepreneur to reemploy the structurally unemployed at a livable wage.

We'd have to think about more fundamental change in society. And Ford has some interesting. if sketchy ideas about that, which I will talk about in the next post.

The different world of the left

We were out socially last night and talking to some academics. They were talking about affect theory, Hart and Negri's Empire, Althusser, the Frankfurt School. It is such a different intellectual world. It is almost a little sad how people can have such different mental landscapes without more cross-fertilization.

But that is part of the more general problem. I think there are few things in the culture or the social sciences that are genuinely completely new. There is always likely to be a sub-industry of people who work on it, and an intellectual lineage that stretches back, sometimes tenuously, for generations or centuries or millenia.

So just as in technology, much progress comes from recombination and synthesis. People talk of interdisciplinary communication all the time. But it is difficult.

Besides critical theory, the academics were also saying the tax rates aren't fair. And in particulars or details I agree with that (although tax simplification is much more important, and focusing on just high marginal rates is crazy).

. But it is again such a deep-rooted idea, that taxes should go higher to support more public services, which is mostly unexamined. People really aren't exposed to the arguments of the other side, or even some of the details.

I don't think people think through public issues, so much as say what their friends or social circles think. Indeed, I think the political science studies of voting behavior say as much.

It reminds me of the famous quote by Pauline Kael, who was a critic at The New Yorker when Nixon won the election and active in Upper West Side circles. She was dumbfounded. How could that possibly be, she asked. No one I knew voted for him.

Thursday, November 10, 2011

A good quote in The Economist

From a special report section on euro problems, encouragingly entitled "Staring into the abyss". I love the Schumpeter quote.

WHEN BRITAIN ABANDONED the gold standard in 1931, it was not only forsaking a system for managing the currency but also acknowledging that it could no longer bear the mantle of empire. When America broke the dollar’s peg with gold in 1971, it ushered in a decline that continued until Paul Volcker re-established confidence in the currency in the early 1980s. As Joseph Schumpeter, the great Austrian economist, once wrote: “The monetary system of a people reflects everything that the nation wants, does, suffers, is.”

Risk-taking and virtue

I've been thinking more about how we see the world if we use the older Aristotelian tradition of the virtues, following on my discussion of After Virtue below.

Why should anyone care? Is this not quite an abstract philosophical question remote from an economy beset by debt, unemployment, and the rancid remains of a vast financial crash?

We should care because it affects the incentives we live by and the kind of rules our lives follow, the kind of behavior we encourage and respect and therefore the kind of economy and society we have.

Something has gone terribly wrong with our incentives. And that is why going back to our fundamental assumptions about what we admire and encourage is a good idea.

Let's take a concrete example. The right and the business community often argues we need to reward risk-taking - for example, starting a business or investing in a risky venture. Or trading CDOs or swaptions.

But it does not have to be purely a matter of monetary incentives to take risks, or monetary compensation for successful outcomes.

Risk-taking is in many ways a version of one of the older virtues - courage. And it lies, like other virtues, between two vices. There is rashness or speculative excess on the one hand. And there is being too conservative, too cautious and unwilling to have any skin in the game on the other.

In McIntyre's scheme, the general virtue, like courage or honesty, is exercised in a specific practice - being an entrepreneur or investor, say - and embedded in institutions which provide external rewards.

The economic issue is getting people to take the right degree of risk. And it is that which the bonus incentives in the banks obscured. (It is more than just a principal-agent problem, in technical economic terms as well.)

So you get ought to get respect and a reward for exercising the virtue, not just - or even primarily - the monetary reward.

It makes risk-taking a matter of character and judgment, not just probability and math. That is also attractive.

Many of the explanations for the financial crisis come down to excessive incentives to take risks. So a different way to look at risk behavior matters, beyond just the expected payoff, value-at-risk or hedging strategy. Risk is not probability ( a theme I will return to later.)

Money and Virtue

One of our problems is virtue is invisible to money. The worst cowardly vicious thief can still be rich. Money is value-neutral. That is one of its advantages in a liberal society. Money can be a means to any end.

And that is why many groups - the great religions, the older professions and academia, the arts and sciences, aristocracy and military castes - have always been suspicious of money. It did not usually prove any worth, even if they still liked to have it.

Indeed, it could often undercut other values. Traditional societies tend to corrode quite quickly in the face of the vigor, energy and flexibility of monetary, commercial societies.

Merchants were looked down upon by the priestly and aristocratic castes of traditional societies. In India, for example, Brahmins and Kshatriyas looked down upon the Vaisya merchant castes, and all looked down upon the laboring Shudra castes.

These days we are very suspicious of distinctions of respect or status, or any incentives which are not monetary. Older ideas like honor or duty have faded away. And maybe often that is a good thing. Nationalism or ethnic identity sometimes rears its head.

But we have few incentives other than money - and perhaps celebrity and political power - to motivate people in broader society. Maybe that is where a lot of the problem lies.

It's another coffee shop question.

What should our incentives be?

"The Financial Folly of Fairness"

Megan McCardle fears governments often can't reconcile what is necessary to solvle an economic problem with what people will tolerate. She writes in her Atlantic blog:

We feel, very deeply, that financial and economic efficiency should mirror our intuitive sense of justice. And probably it does, mostly, when you're living in a hunter gatherer tribe. But in a complex world where mistakes are easy and detecting them is not, I just don't think this holds true. [..]

As anyone who has ever spoken to a five year old knows, the sense of fairness is one of the most primal and intractable cognitive instincts we have. In the best of times, it takes years to change public opinion about what is fair. These are not the best of times, and we do not have years.

Once again, so many of our difficulties come from the fact we no longer have a common sense of what is fair, or a common set of values which can call for working for the common good.
We have often have minutes instead of years to make key decisions. Especially when financial crises decisions have to be made under stress and mmense time pressure, when you are exhausted and running out of time on a crisis weekend before the Asian markets open on Sunday evening.

It gets even harder when you have to transfer resources to other countries. I was watching CNBC out of the corner of my eye yesterday afternoon, and saw Rick Santelli warning that any increase in US commitments to the IMF to help Europe would ignite a political firestorm at home.

Fed help for European banks could also be very difficult.

This is really not good.

Wednesday, November 9, 2011

Not La Dolce Vita

LCH raised margin requirements on BTPs this morning, and so Italian debt yields are zooming higher. We are well through the crucial 7% level and approaching 7.3%

This is very ugly. No-one has a good plan for how this turns out.

Tuesday, November 8, 2011

Concluding "After Virtue"

I'm concluding a discussion of Alisdair McIntyre's book After Virtue: A Study in Moral Theory, Third Edition.

So, summing up:

The virtues therefore are to be understood as those dispositions which will not only sustain practices and enable us to achieve the goods internal to practices, but will also sustain us in the relevant kind of quest for the good , by enabling us to overcome the harms, dangers, temptations and distractions which we encounter, and which will furnish us with increasing self-knowledge and increasing knowledge of the good.


the good life for man is the life spent seeking for the good life for man, and the virtues necessary for the seeking are those which will enable us to understand what more and what else the good life for man is. (p219)

Communities and traditions do have their contexts and particularities.

The notion of escaping from it into a realm of entirely universal maxims which belong to man as such , whether in its eighteenth century Kantian form or in the presentation of some modern analytical philosophies, is an illusion and an illusion with painful consequences. (p221)

Such particularity does not have to be conservative. There can be constant argument about what a tradition is, in the same way as there can be constant arguments about what good medicine is. But they are still rational arguments over facts, not just feelings or incommensurable principles.

And so what is the ultimate conclusion which is relevant to some of my previous posts for example, the Rawls/not-Rawls issue, the great debate in contemporary liberal theory between egalitarian welfare liberalism and libertarianism?

.. there is something important, if negative, which Rawl's account shares with Nozick's. Neither of them makes any reference to desert in their account of justice, nor could they consistently do so. .. the notion of desert is at home only in a community whose primary bond is a shared understanding both of the good for man and the good for that community and where individuals identify their primary interests with reference to those goods. ..

.. it is a consequence of this that their views exclude any account of human community in which the notion of desert in relation to the common tasks of that community in pursuing shared goods could provide the basis for judgments about virtue and injustice.

In a neutral liberal state, the "nature of political obligation becomes systemically unclear."

So why do I find all this so transformative and attractive?

  • we can't make sense of where to take the economy next without some sense of common purpose, some sense of telos. The neutral state and neutral monetary transactions block that. We need to move beyond being unable to talk about the ends we want, because otherwise we cannot set up the economy to pursue them. We just get the lowest common denominator of empty, abstract, neutrality.
  • I've argued it's essential to have some means to control misbehavior and deviance and decide who deserves what - otherwise we will never persuade the broad middle of society to move to something new.
  • the McIntyre/Aristotelian view provides a much fuller account of what motivates people and what gives meaning to life. Exercising discipline and persistence to grow and flourish in new skills, to take risks and achieve ends - that is a much more convincing account than following universal maxims.
  • in fact, as we move beyond needing more stuff - more basic goods and basic services - what we perhaps want and need most is a sense of purpose to motivate and delight us. Purpose and intrinsic motivation is in many ways the ultimate luxury good for producing happiness.
  • McIntye's account breaks some of the logjams which have led to an inability to decide about who deserves what in society - which are increasingly gumming up the whole system, as in discussions of taxation, or undermining the welfare state, as notions of rights or "fairness" prevent any reasonable discussion of who has earned what.
  • it locks into the sense of story, of narrative, of drama which has fascinated people since we told stories around campfires on the savannah in the dawn of the world. If our elite theory has forgotten the virtues, the larger culture hasn't. It is the same force which thrills us with a good movie or a convincing novel.

If we don't have an account of who deserves what, we are left with the default: non-negotiable rights, non-changeable social structure, and an exclusive reliance on market allocation by many people because we don't trust politicians or courts to allocate justly or fairly.

With the standard broadly liberal view that has dominated politics and academia for half a century, we end up deciding things by shouting louder for our preferred incommensurate rules, not by reason.

And so it is no wonder the political system loses legitimacy. It no longer serves the ends people want, just the neutral framework.

It is not government by the people, for the people, of the people. It is a universalistic abstraction which serves impersonal rules, and has nothing to say - by design - about what makes people happy or flourishing. It may be "fair" but it is uninspiring and unjust. It may transfer income to the poor, but their lives on sink estates are boring and bland and chaotic. Social structures break down. Culture deteriorates.

We need something which links to human flourishing, not to homo economicus, nor the ghost behind the veil of ignorance. And McIntyre's account is a refreshing rebuttal to the views that have got us stuck.

Who would have thought that the way to move forward into the accelerating technological kaleidoscope of the 21st century was to look back to a philosopher who lived in the fifth century BC.

I'll have to actually read The Nicomachean Ethics (Penguin Classics) before long.

After Virtue: the consequences of the failed enlightenment project

I'm discussing Alisdair McIntyre's book After Virtue: A Study in Moral Theory, Third Edition.

So McIntyre argues we need some sense of telos, or purpose, to make sense of morality. When that was lost in the eighteenth century, we still needed either some new replacement for telos, the main candidate for which turned out to be utilitarianism, the greatest good of the greatest number and the antecedent to much of the thinking about welfare and utility in economics; or a completely new categorical status or grounding for morality, which was initiated by Kant's practical reason.

Dismissing our two main modern theories, utilitarianism and rights

The problem with utilittarianism was, he says, "that the notion of human happiness is not a unitary, simple notion and cannot provide us with a criterion for making our key choices." (p63)

And it is not easy to use utility or any single notion in practice, either.

The objects of natural or educated human desire are irreducibly heterogenous and the notion of summing them either for individuals or for some population has no clear sense. (p70)

The Kantian tradition has its problems as well. "Rights"are problematic, he argues, even if they dominate so much of our public debates these days.

there is no expression in any ancient or medieval language correctly translated by our expression " a right" until near the close of the Middle Ages: the concept lacks any means of expression in Hebrew, Greek, Latin or Arabic, classical or medieval, before 1400, let alone in Old English or Japanese as late as the mid-nineteenth century. From this it does not follow that there are no natural or human rights; it only follows that no-one could have known that there were. .. Every attempt to give good reasons to believe there are such rights has failed. (p69)

So where does that leave us?

"..the price paid for liberation from what appeard to be the external authority of traditional morality was the loss of any authortiative content from the would-be moral utterances of the newly autonomous agent. Each moral agent now spoke unconstrained by the externalities of divine law, natural teleology or hierachical authoirty; but why should anyone else now listen to him? (p68)

And what we end up with is a bureaucratic individualism where the characteristic debates are "between an indiviudalism which makes its claims in terms of rights and forms of bureaucraitic organiization which make their claims in terms of utility. "

This produces a characteristic for. It "occurs as a reaction to the alleged invasion of someone's rights in the name of someone else's utility.

The self assertive shrillness of protest arises because the facts of incommensurability ensure that protestors can never win an argument; the indignant self-righteousness of protest arises because the facts of incommensurability ensure that protestors can never lose an argument either...the effects of incommensurability ensure that protestors rarely have anyone to talk to but themselves. (p71)

It is, he says, a rhetorical mask which conceals the preferences of arbitrary will and desire.

The older idea of the virtues

So what is the answer? Enlightenment moralities ignore the older question " what sort of person am I to become" in favor of "what rules ought we to follow?" (p118)

McIntyre goes back to the much older tradition of the virtues, starting off in Homeric Greece, which had a "conception of excellences or virtues as those qualities which enable an individual to do what his or her role requires." (p128). He traces it forward through Athens and other city states. Sophocles believes there can be rival conceptions of the virtues, and sees tragedy in that fact. Plato and Aristotle instead believe they are harmonious.

It is Artistotle who he believes gives the best account (mostly in The Nicomachean Ethics (Penguin Classics)).

Human beings, like the members of all other species, have a specific nature; and that nature is such that they have certain aims and goals, such that they move by nature towards a specific telos (p148)

The telos, the good for man is eudaimonia - blessedness, happiness, prosperity. In other words,

the good for man is a complete human life lived at its best , and the exercise of the virtues is a necessary and central part of such a life , not a mere preparatory exercise to secure such a life.

And what then are virtues?

The virtues are precisely those qualities the posession of which enable an individual to achieve eudaimonia and the lack of which will frustrate his movement towards that telos.

There is a mean: courage lies between cowardice and rashness, for example, and it requires experience and judgement to act correctly. For each virtue there are two corresponding vices, Aristotle says.

There is little reliance on rules. Instead, it is about the cultivation of predispositions and excellences and strengths. Flourishing, so to speak.


There can still be heterogeneity of virtues, of course. But McIntyre argues people find meaning in practices, which are "standards of excellence and obedience to rules as well as the achievement of goods." We voluntarily submit ourselves to traditions and practices which tell us what the best standards of being a piano player, say, or a professor or an artist or a baseball player are. Achieving those standards requires discipline, risk-taking, honesty and fairness - "internal goods".

No practices "can survive for any length of time without institutions", he says, which are focused on externals - money , power, status. But without the virtues of justice, courage and truthfulness, "practices could not resist the corrupting power of institutions either." (p194)

And here's a main difference between McIntyye's Artistoteilan view and the liberal view. For liberalism, a community is simply a neutral arena in which individuals pursue their own idea of the good life, and it is not a legitimate task of government to inculcate any one moral outlook.

For the older view centered on the virtues, "political community not only requires the exercise of the virtues for its sustenance, but it is one of the tasks of parental authority to make children grow up to be vrtuous adults. " (p195).

A snese of the wholeness of a human life will still provide a narrative unity for particular contexts or differences in the exercise of the virtues. They utlimately have to contribute to a "whole life", which may have different variations but is not arbitrary. "We agree in identifying the intelligibility of an action with its pace in a narrative sequence." (p214)

"I for one welcome our new robot overlords"

Walter Russell Mead (who is just awesomely productive in his blog, writing on everything from Kyrgyz politics to American inner city politics to the future of Argentina - and that's just the last few days) pushes back against those who believe technology will cause a jobs crisis. He condemns later-day Physiocrats who believe there is a fixed amount of "real work" to be done:

What Physiocrats and neo both miss is that while the basic work needs to be done (the crops need to be planted and harvested, the stuff needs to come out of the factories), human society becomes richer and not poorer when fewer and fewer people have to spend devote those lives to those jobs. Yes, a lot of scut jobs (and some white collar ones as well) are going to disappear, but ultimately people will figure out new ways to create value that will make them good livings.

This is true enough, but also a straw man. No doubt there are immense new possibilities if we carry out the "basic work" more efficiently with fewer and fewer people. But we have to actually figure out how to do that.

He continues:

We can’t all make a living planning each others’ weddings, neo-Physiocrats cry, but in fact we can — if the food and the other things we need are plentiful and cheap. Value is what people will will pay for, and that can be ballet lessons and items for e-gaming; as more and more of the routine business of life isn’t needed, people will have more free time and be willing to pay people who can help them fill it with meaning, excitement, satisfaction and fun.

But at the same time in other posts he is warning college students and public unions that life is about to get much much tougher.

We do have to figure out new ways to organize the economy so people get what they value most. The trouble is more and more of that is not traditional private goods, on the definition I was discussing here.

So value is not just what people will pay for, or pay for effectively. At very least, you need some better conception of property rights and incentives to provide and consume value.

To me this is the great question of the age, though, which is why I'm trying to figure out what I think about it on this blog.

"Computers have saved us time, but what have we done with it?"

Here's a nice column by a philosophy professor in the Guardian about how time-saving technology somehow doesn't seem to save us any time.

I'm hardly the first to point out that instead of consuming the time-saving benefits of information technology by making the work day less pressured, we have found other ways of filling up the time. Now that we have such whizzy computers, university administrators can do valuable things that we had no time for before, such as making sure every member of the department has signed a piece of paper swearing that they know where the fire exits are.

Sunday, November 6, 2011

After Virtue

I'd mentioned a few months ago that I wanted to read After Virtue: A Study in Moral Theory, Third Edition by Alisdair McIntyre. It is a book about moral philosophy, published in 1982, which argues that we should take an older Aristotelian tradition centered on the virtues more seriously.

I finished it yesterday, and I found it quite transformative.

Earlier skirmishes

I remember hearing vaguely about the book at college, although I never read it. It just didn't seem to be in the mainstream of interesting questions.

In fact, there was an extract from After Virtue in a book which otherwise had an enormous influence on me, Liberalism and Its Critics (Readings in Social & Political Theory).

But back then, the central issue in ethical and political philosophy was presented as a contest between a) several varieties of liberalism, including Rawls and Nozick, against b) "communitarianism", which centered on a more embedded, situated idea of morality and politics, principally represented by Amitai Etzioni.

Indeed, communitarianism was a side-show, a marginal interest. The really interesting discussions were about the conflict between left-liberalism (Rawls,A Theory of Justice: Original Edition ) and right-liberalism (Nozick,Anarchy, State, and Utopia. )

Above all else, I was influenced by Isaiah Berlin, whose famous essay "Two Concepts of Liberty" was included in that volume. McIntrye was included, but not noticed, at least by me. I'm not even sure I read the essay from After Virtue in that volume.

The question in the air was above all: Rawls or not-Rawls.

Why After Virtue is interesting

Fast foward to the last two weeks. I've been working my way through After Virtue and find that it answers many of the issues that I've been grappling with so far on this blog, including the neutrality of the liberal state, its lack of of interest or recognition of ends and purpose, and its inability to come up with good ways to restrain exploitative or anti-social behavior.

After all, I've been arguing one of the main things we need to move the economy forward is overcoming some of the roadblocks that our pervasive liberalism, broadly defined, throws in the way. This isn't a simple matter of left versus right. Most of the current political spectrum is a variety of liberalism. Libertarianism, for example, is a particularly extreme version of liberalism.

That liberal political theory may have been suited to the 20th century, but its rejection of any notion of purpose or the means to human flourishing means it is an obstacle to moving forward. In its Rawls-era guise, liberalism has lead to a vast welfare state which has sapped the energy and meaning out of life,and threatens to bankrupt the west.

So I've been looking for a way to talk about the purpose and meaning in peoples' lives in a more grounded way than contemporary liberal political philosophy allows.

The failure of the enlightenment project

So how does After Virtue change this? McIntye argues that most of our moral problems arise because we lost most of the underlying substance of moral philosophy in the 18th century. We abandoned the older tradition of thinking about morality in the West.

It is as if most of science had disappeared, he says, and we were just left here and there with isolated scraps or descriptions of relativity or the periodic table. We still have some of the language and the intutions. We have the simulacra of morality. But we have lost our comprehension of heart of the subject.

No wonder we are confused, he says, and bogged down in arguments about incommensurable principles, entitlement versus equality, freedom versus community.

And the reason is we have lost any firm sense of teleology, the ends and purposes that we strive towards. Kant and other enlightenment philosophers tried to banish it, and instead tried to ground morality on pure reason. They were likely influenced by Newton's example of reducing natural philosophy - science - to an ingenious rational system.

Kant and his successors consigned the much older classical tradition based on Aristotle and the medieval conception based on Aquinas to the garbage can.

This was a wrong turn.

We apparently cannot agree on moral or political issues these days, McIntyre says, partly because we mostly take an "emotivist" attitufde to morality . We maintain a sharp distinction between rational and non-rational discussion, and any discussions of purpose or ends belongs to the latter. We talk past each other in the langauge of ultimate rules and principles.

For the emotivist modern self,

to be a moral agent is, on this view, precisely to be able to stand back from any and every situation in which one is involved and every characteristic that one may possess, and to pass judgment on it from a purely universal and abstract point of view that is totally detached from all social particularity. (p32).

If there is a purpose, there are rational "oughts"

The trouble is the enlightenment project to produce a neutral ethics compelled by reason alone was bound to fail, he argues. Hume, Kant,Diderot, Kierkegaard, Smith all

share the project of constructing valid arguments which will move from 'premises concerning human nature as they understand it' to 'conclusions about the authority of moral rules and precepts.'

But McIntryre argues that this could not work because of a discrepancy between these two principles. You need some element to move from human-nature-as-it-is , to man-as-he-could-be-if-he realized-his-essential-nature, because otherwise human nature is discordant with the rational principles of ethics. There is a gap between lofty principles and actual human behavior.

Far from being universal, in fact the enlightenment project was a reflection of particular social circumstances in Northern Europe in the 18th century.

McIntyre rejects the argument that you cannot derive an "ought" from an is. He cites an older example: "he is a sea-captain", and "he ought to do whatever a sea-captain ought to do" do entail each other.

The self is now "abstract and ghostly", "because the kind of telos in terms of which it was once judged and acted is no longer thought to be credible." (p33).

You need three things for a moral system to be successful, he says - and one of them is a sense of purpose to make sense of the other two.

Each of the three elements of the scheme - the conception of untutored human nature, the conception of the precepts of rational ethics and the conception of human-nature-as-it-could-be-realized-its-telos- requires reference to the other two if its status and function are to be intelligible. (p53)

And that is why the enlightenment project stripped out the heart of our moral tradition, leaving us with the language and outer form alone.

The older classical tradition was different.

Within this tradition moral and evaluative statements can be called true or false in precisely the same way in which all other statements can be so called. But once the notion of essential human purposes or functons disappears from morality, it begins to appear implausible to treat moral judgments as factual statements. (p59)

And without some rational way to discuss ends, in time all we are left with is subjective emotivism and the will to power.

I'll discuss the next stage of his argument in the next post. But for now his main point remains: without some sense of telos, some sense of purpose, most of our moral language does not make sense and we are left with a range of incommensurable rational principles. We have forgotten all the rest.

Change of Pace Photo

Roof of one of the cloisters, Musee National du Moyen Age, Paris

Dividing the economy into different kinds of goods

Excludable Non-Excludable
Rival Private goods food, clothing, cars, personal electronics Common goods (Common-pool resources) fish stocks, timber, coal
Non-Rival Club goods cinemas, private parks, satellite television Public goods free-to-air television, air, national defense

Because it's so important, here is a table (via a previous Wikipediaentry) which I eventually figured out how to do in html.

It builds on the discussion of rival and excludable goods in the previous post.

As more of the economy migrates from private goods to the other quadrants, the institutions and questions need to change.

Rival and Excludable Goods

Talking of Nobel Prizewinners in Economics, one shoo-in for a future gong is Paul Romer, who has written some of the most influential work on economic growth in recent years. A reference in the Brynjolffson and McAfee book reminded me that I'd never read his original papers, although of course I'm familiar with the ideas. For all I complain about academic economics, some of it is extremely useful.

And one of the most important ideas for understanding economic change is a clearer understanding of rival goods and excludable goods. A rival good is " a good whose consumption by one consumer prevents simultaneous consumption by other consumers." (wikipedia). Most goods for sale in the store are rival goods. If I buy a packet of packet of fettucine, you can't have the same packet as well.

But some goods are non-rival, especially many kinds of intangible goods.

As for excludable goods, " a good or service is said to be excludable when it is possible to prevent people who have not paid for it from having access to it, and non-excludable when it is not possible to do so". (wikipedia again).

The music industry has, gradually and very unwllingly, been moving from an excludable model of paying for songs to coping with illegal copying and a non-excludable model. Bands increasingly give their music away, or tolerate copying, and make their money through live performances and concerts and t-shirts which are excludable.

Many of the key developments in the economy can be understood as a matter of how we should deal with nonrival, partially excludable goods.

As Romer says in the AER last year discussing the progress of growth theory:

..the defining characteristic of an idea, [is] that it is a pure nonrival good. A given idea is not scarce in the same way that land or capital or other objects are scarce; instead, an idea can be used by any number of people simultaneously without congestion or depletion.

In fact, the more people use a nonrival good, the more useful it is. There are increasing returns to scale.

No matter how it is communicated and reused, nonrivalry by itself creates strong incentives for economic integration among the largest possible group of people. As we will argue in the next section, this is the best candidate explanation for ... the relentless pressure for expansion in the extent of the market.

The existence of nonrival goods can cause problems for our usual view of markets and efficiency.

recall that the increasing returns to scale that is implied by nonrivalry leads to the failure of Adam Smith’s famous invisible hand result. The instiutions of complete property rights and perfect competition that work so well in a world consisting solely of rival goods no longer deliver the optimal allocation of resources in a world containing ideas. Efficiency in use dictates price equal to marginal cost. But with increasing returns, there is insufficient output to pay each input its marginal product; in general, price must exceed marginal cost somewhere to provide the incentive for profit maximizing private firms to create new ideas. This tension is at the heart of the problem: a single price cannot simultaneously allocate goods to their most efficient uses and provide the appropriate incentives for innovation.

An important unresolved policy question is therefore the optimal design of institutions that support the production and distribution of nonrival ideas.

(my bold). I think this is very important indeed and, naturally, could not agree more.

Romer also says we are far off having a clear idea of what such institutions ought to be.

In practice, most observers seem to agree that some complicated mix of secrecy, intellectual property rights that convey partial excludability, public subsidies through the institutions of science, and private voluntary provision is more efficient than any corner solution like that prescribed for rival goods. We are, however, very far from results we could derive from first principles to guide decisions about which types of goods are best served by which institutional arrangement.

The key thing, for me, is that as the economy evolves the relative balance between different kinds of goods are changing. The more value comes from ideas, arts, knowledge and other intangibles, the more we are in uncharted territory for understanding how to run the economy.

Most of these new sources of value are only imperfectly excludable, if at all.

Less and less of what we want falls into the category of rival, excludable goods like Rolex watches or apartments on Central Park West, where market transactions are such an efficient, effective way to allocate resources. And many more kinds of good which could be made excludable, such as gmail, can be delivered at such low marginal cost it makes more sense to give them away free and pay for them by ancillary activities, such as advertising.

And other huge areas of the economy are abstract and intangible, such as most financial products. Pricing depends less on supply and demand than attributes such as risk, real interest rates and correlations.

Less and less of the economy is the familiar marketplace where we hand over cash for a specific physical thing.

And that's why we have problems. We haven't evolved the institutions to cope with that change. The incentives to handle non-traditional goods are missing or poorly developed.

The frightening (and invigorating) endlessness of knowledge

Incidentally, one feeling I have all the time is the almost ungraspable vastness of the amount of thought and literature on any topic.

For any given point one might make in a minute or two, people have spent entire careers delving into that one detail. It is increasingly hard to bring things together into a coherent whole, all the more so when there is such an edifice of experts and prestigious received opinion on any one point. And so often the edifice is a fortress built to keep out other perspectives and protect those within. The inhabitants build elegant towers mostly oblivious of other currents of thought or related disciplines.

I watched some sessions recorded at a meeting of Nobel Prizewinners in Economics in Lindau, Germany a few weeks ago. There the brilliant winners sat, surrounded by official adulation and the rapt attention of three hundred economists from the younger generation who had been selected to bask in their glow.

And the winners deserve praise. But it also seems so hermetically sealed and invulnerable to anybody who has not spent thirty years painfully working themselves up within the academic discipline. It almost seemed like a visible incarnation of "normal science", as Thomas Kuhn put it (The Structure of Scientific Revolutions). "Paradigm shift" may be one of the most overused and abused words in intellectual enquiry. But you can see why they are so difficult and rare, as the Nobel Laureates sit on their airless summit.

A lot of the problem is that academia (at least in economics) rewards consistency of theories - rigor - which is only tenuously related to truth.

But, as we were just discussing, it is the process of recombination and synthesis that produces innovation, and that is what I'm trying to do in a tiny way here.

Creativity and Combination

I'm concluding a discussion of Erik Brynjolfsson and Andrew McAfee's book Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy.

So what does this all mean for the future? The answer is not to compete against machines, they say. Instead, it is to compete with them, using them to leverage up skills. This requires above all organizational change.

How can we implement a “race with machines” strategy? The solution is organizational innovation: co-inventing new organizational structures, processes, and business models that leverage ever-advancing technology and human skills.

There may also be opportunities for entrepreneurs to develop business models which use mid-skilled workers better, and new worldwide specialized niches to exploit.

As a result, technology enables more and more opportunities for what Google chief economist Hal Varian calls “micromultinationals”—businesses with less than a dozen employees that sell to customers worldwide and often draw on worldwide supplier and partner networks.

But the most essential and important way forward is the sheer power of combining and recombining existing ideas into new forms. The authors see this process in operation in the new economy:

New digital businesses are often recombinations, or mash-ups, of previous ones. ...Because the process of innovation often relies heavily on the combining and recombining of previous innovations, the broader and deeper the pool of accessible ideas and individuals, the more opportunities there are for innovation. ...We are in no danger of running out of new combinations to try. ..Combinatorial explosion is one of the few mathematical functions that outgrows an exponential trend.

And this leads to a fundamentally optimistic vision.

The economics of digital information, in short, are the economics not of scarcity but of abundance. This is a fundamental shift, and a fundamentally beneficial one. ..Every generation has underestimated the potential for finding new ideas. We consistently fail to grasp how many ideas remain to be discovered. … Possibilities do not merely add up; they multiply.

I think this is a reasoned, articulate response to change. It is very much consistent with W. Brian Arthur's explanation in his book The Nature of Technology: What It Is and How It Evolves of how technology advances by constantly replacing subassemblies and components of existing technologies.

It also reminds me of Matt Ridley's book The Rational Optimist: How Prosperity Evolves (P.S.), which discusses the evolution of exchange and specialization. In Ridley's fabulous phrase, "Ideas have sex" and evolve and grow following their own rules of natural selection. That cross-breeding and innovation constantly leads to better living standards, in contrast to many doom-sayers through the ages.

I agree with these optimistic takes. Recombination can take place at a higher rate than ever before. Sitting here with my little iPad and keyboard on a Sunday morning, I have much of the cumulative knowledge of humanity a few swipes away, from wikipedia to many of the most cutting edge academic papers to many of the great classics available free on kindle and hundreds of thousands more books available for a small amount. That was unimaginable when I was in college, twenty years ago.

But such recombination and innovation does not mean we keep all aspects of our current economic system. Rather the opposite.

Many people are likely to find startling new sources of value which will enrich everybody's life. But it will be harder to flow everything through the market, because the natural price for many of these innovations will be at or close to free.

We need an explosion of organizational and cultural innovation.

It comes back to the economics of abundance. How do you price something which is valuable but extremely abundant? We don't price air, and we only partially price water.

The standard economics answer is you define the property rights concerned, and the market will take care of the rest.

And that is right. But the problem is we haven't adequately defined the property rights or institutions or social technologies to make this new world work. Instead we have the world economy beset by high unemployment and insufficient demand in the developed countries.

So one problem with Brynjolffson and McAfee's book, brilliant as it is, is like many other commentators it primarily sees the issue as a labor market problem. In their view, we have to find new ways to educate people to produce new marketable skills.

In fact, it is more a problem of economic structure and the boundaries of the market, as the new goods the want are increasingly less discrete marketable goods and services. Standard goods and services are increasingly saturated and automated, as the sheer miracle of market efficiency makes them ever higher in quality and cheaper to produce with fewer people.

One book I plan to read shortly is Douglass' North's Understanding the Process of Economic Change (Princeton Economic History of the Western World) which came out in 2005. I read his classic Structure and Change in Economic History years ago, the book for which he largely won the Nobel Prize in Economics in 1993. I'm hoping the more recent book will help me think through the issues of institutional change more, or the evolution of social technologies as I've also been calling it.