Saturday, October 17, 2015

Man Does Not Live by Competition Alone

Tuning our way between competition and cooperation; Mankiw, Diamond, et al. on institutions.

I've read a fine book by Jared Diamond, "The world until yesterday", which is filled with analyses about many native cultures, in contrast to the ambient Euro-Western commercial culture we find ourselves in. What are the differences? Can we learn from each other? Indeed we can. The chapters on warfare make one very important point, which is that war is not hard-wired into humans. When conditions are conducive, we make war, and when it does not pay or is not necessary, we do not make war. Traditional societies typically live at some level of constant, if low-level, warefare, which takes a great toll in lives as well as tranquility. It was often an enormous positive when Westerners imposed state-based systems that eliminated free-lance (ouch) warfare, appreciated by all concerned, despite all the other injustices, indignities, and horrors of colonialization.

Institutions matter a great deal, and if we arrange those institutions to foster cooperation, we can have peace. But when they foster competition, honor, winning, and all the other martial values, we should not be surprised at the results. That is sort of the fork in the road we in the US find ourselves at right now, as the GOP doubles down on class war and seeks to enshrine the right of the 1% or 0.1% to screw over the rest of the population. At the same time, we seem to have valorized this war in the form of the culturally dominant NFL, where competing CEOs (either coaches or quarterbacks, take your pick) lead the nameless and abused troops to pummel rival firms and take over their territories. Some sectors of our society seem to have lost sight of the virtues of anything but competition.

A exemplary document in this effort is the recent defense of the 1% by Greg Mankiw, Harvard economist. To summarize, he points out that super-stars like Steve Jobs and Robert Downey Jr. get their money fair and square in a market competition, so they deserve it, as do all the other CEOs and high-earners who command their high incomes by virtue of a competitive market in talent. All fair, right?

There are many things to say about this, particularly about the true nature of the CEO / FIRE executive market. But one is that it lacks perspective on the institutional framing at work, which is not a matter of accident or divine command. Back in the days of the Hollywood studio system, what would Mr. Downey have been paid for his stellar acting? Not $50 million, by a long shot. Back then the institutional setting was different, and while star actors were well paid, they did not take a high fraction of the box for themselves. Did actors of that time *deserve to be paid less? Did the CEOs of those times deserve to be paid less?

This is far more than a question of how much a market in talent should or shouldn't bear. It is a moral question about what everyone's talent and time is worth, as well as the more practical psycho-economic question of how to treat our fellow workers / citizens in ways that extract their maximum talent for the general cultural betterment and prosperity, including their own. If 99% or 25% must be beaten down so that 1% can pillage and then flaunt their wealth, is that desirable, even if it is the natural result of a competitive system that we ourselves construct? Is the market even the proper measure of such values? Does 1% of the population have to go homeless so that another 1% can maintain its market power vs labor?

My point is that competition is a tool that we use in the classic economic sense to run a capitalist economic system, putatively for everyone's benefit (that is, the greatest good for the greatest number, more or less). And in reality, competition is sharply regulated and limited so that we get results we want rather than those we don't. Each firm is internally socialistic to some extent in order to fence out the market and form a team that can get work done without competitive pressure that is otherwise extremely damaging and literally counterproductive. Many results of competition that are judged to be bad, such as pollution, monopolization, organized crime, etc., are regulated for the public good (or not, as the case may be!). Firms do not go into commercial warfare with machine guns blazing.

As they say in business, "everything is negotiable". The system is not pre-ordained. And if a system fosters excessive competition, with winner-take-all economics that destroys its own institutions and empowers a greedy and amoral elite with so much money that it corrupts the entire political and cultural landscape, a rethink is certainly in order. For example, the recent economic crisis was largely caused by FIRE [finance, insurance, real estate] executives making the conscious decision to short their institution's futures, and those of their customers, via liar loans and all the other paraphernalia of banking control fraud, in order to make short-term gains for themselves. They won the competition, (indeed were forced to those practices by competition itself), leaving the rest of us holding the bag. In response, we need (and have not really gotten) better regulation to block such harms, but more deeply, we need to look at the whole competitive culture.

A similar dynamic is short-changing our longer-term future, where short-term gains in using fossil fuels are funding an enormous political / propaganda effort to minimize / deny climate heating and forestall any public policy to address it. We need a little less competition as the metric of all value, and a little more reflection, compassion, foresight, and judgement.

Putting this in investment terms, there is always a balance between public investment and private investment. An advanced economy always needs some of each- streets to drive on, and cars to drive in. No economy can run without a large array of public goods. We have been under-investing in public goods for a very long time, not only in the critically important area of future climate change, but in the totally here-and-now issues of bridges, education, and perhaps most of all in our political system which provides all these goods, keeping it safe from corruption and capture by the most amoral (and highly competitive!) minority elements of society.

Basically, the whole tenor of competition in the US is vastly overdone. Other cultures (Scandinavia) work extremely well with a much lower level of competitive vainglory and economic elitism, not to mention its concomitant existential destruction of the underclass. And in large part, they do this through redistribution, since what the 1% gather is far from just deserts. It is the product of luck, of public investment, of the work of others, of unanticipated aspects of institutional settings, rent, plus, at times, talent. And where did this talent come from? Even that is only partly their own responsibility, having been largely conferred by birth. We all built it. Collectively, we want everyone's talent to be nurtured and expressed, but isn't the prospect of having a great and fulfilling job or life's work a sufficient spur to develop one's talents? What more does money provide in life satisfaction? And what happens when the flagrant reward of a few people's talents retards everyone else's chances to develop theirs?

Converse examples come from regions like the Middle East and Africa. Where is no shortage of competition, yet for some reason, progress is limited, if not retrogressive. Is it possible that competition is not enough, and that for progress to occur, that competition needs to be heavily channeled and regulated by both strong states with explicit laws, and by implicit cultural practices and norms that favor creation and service over destruction? (For comparison, consider the extended debates on governance that took place in the pre-revolutionary American Colonies.) Looking at the Middle East in particular, Islam has a special problem with violence. It is outstanding at fostering (small) institutions of worship and charity. But it is miserable at fostering instutitions of governance, and through its doctrine of jihad encourages destruction, at least by some readings, particularly those that take its earliest scriptures and history most seriously.

  • A WSJ author gives some numbers on what full redistribution would look like. "To recap: Current federal tax-and-spending policies combine to redistribute $1.5 trillion each year from the top 40% of Americans to the bottom 60%. To close the income gap to zero would require $4 trillion. The questions to those who say we should do more to narrow the income gap are: Where on that continuum should we aim, and what policies would achieve these goals without bringing the economy to its knees?"
  • Tax havens are bad.
  • Netherlands is the Delaware/Cayman Islands of the EU.
  • Conventional lunacy ... central bankers plead for interest rate increases.
  • The invisible hand needs visible public works.
  • Leadership means building cooperation.
  • Sociopaths in the 1%- rule or exception? Are companies themselves sociopathic (i.e. amoral) by definition?
  • Competition for thee, but not for me.
  • Iraqis have been misgoverned for some time.

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