The first area travelers find themselves in in a typical western city is a pedestrian area full with shops, department stores (now dying) and other commercial enterprise. Here’s the question: why is that? This question stuck me sitting in that park: why do city centers look the way they do? Why do they offer the functions they offer? Let’s put aside the fact that city centers are dying in many medium sized cities these days and are replaced by shopping malls and huge retail stores in the outskirts.

When I asked this question to my girlfriend later, I was met with incomprehension: “What do you mean – what else should there be?” When I set out to just mention a couple of things, she stopped paying attention.

City centers are pretty much the most important part of a city and the lifes of its inhabitants after individual homes. Literally, it is the center of public life, just as home is the center of private life. This is where tourists go, who want to get a “feel for the place”, the “atmosphere”. This is where many, many people go on sunny Saturdays in Munich. People go there to have a good time, to meet friends, enjoy life, see something interesting. That’s what you might expect to happen there. What we got is a shopping spree, that indeed by most going both real shopping as well as window-shopping is perceived to serve the goals mentioned. All these functions are surrounded, composed, defined and fulfilled by shops. Most of them look pretty much the same all over the planet.

Yes, you’re right. This has been so for a long time. But wait. Sometime, castles were the centers of cities. Protection was important, and selling your guild’s product (another center of your life) to the castle’s inhabitants was important. Even longer back, marketplaces served as political centers (if history books are to be believed, city centers were the centers of decision making among the “free men” of certain polis – notwithstanding some were freer than others). In other words: the working hypothesis is that what is important to a society or a city is at it’s center. The question is: is what is important going to change if you put something else at the center?

Imagine a city center was a big area filled with public spaces without specific functions, plain grass or asphalt spaces, pavillions of different sizes and purposes like sport studios, science labs where people could try out stuff, public computer rooms, poll machines where people could organize public “doodle” polls, a government “hotline” office, spaces for skaters or other sports, park areas to relax, pavillions with free musical instruments (against some deposit or a public insurance, whatever), libraries, cafes & restaurants, museums, all rather small so that you could cover each in an hour or so, free lecture halls where people could sit down and hold a seminar for others on all kinds of topics, or speaker’s corners. All human-sized, easy to get around on foot or if necessary by these cool electric vehicles that you can stand on to drive. I know, cities need to grow high, but that’s not what I mean, I mean spaces where people feel welcome, not disciplined by space and magnitude. What if there was material to do things with – tools, raw materials, ideas – floating around, without being pressed into purpose already, free space in the truest sense of the word?

Imagine, the purpose of life was not to be a consumer, someone who uses commodities as means “to express herself”, but life was about your relation to the world and the people, the community around you. Imagine that after your basic material needs were met, you could go to the city center and learn how to carve beautiful things out of wood (if you were talented – which the author certainly isn’t). If you would appreciate beautiful things that served their purpose for a long time, more than a season. If self-expression was artistic and thoughtful, independent of the jewels you wore – which you still could, of course!

What would happen if you suddenly had time to think, by which I certainly include time to do “nothing”? If suddenly the center was engaging more than your wallet?

I know, I’m an idiot. But … just think about it.

Postcapitalism is the search for better accounting measures, a balance score card that takes into account the future, not discounts it. It is the study of the social system in a holistic approach that takes into account happiness of people, behavioral and psychological constants of the human species and asks the classical question “how can we meet people’s needs when faced with limited resources” the other way round: how can we use limited resources (the given) with people’s needs (the goal) for the long run? The answer to the first question was classically “by discounting the future – i.e. by borrowing from the future, or, equivalently, transferring costs into the future”. Further, postcapitalism asks: “what do people really need?” – I can hear the outcry – how am I to know? Well, if put slightly different, and with more charisma, this question has had resounding success in Obama’s “Audacity and hope”. Last but not least, I ask: how can policy and the economic setup be used to guide but not determine mass action, how can we achieve a social system that leaves free choices among the (then politically/systemically) preselected paths into the future that are sustainable? – A question I’ve adapted from Richard Thaler of course.

Arguably our biggest problem is how to get the private sector business to identify climate change as a business opportunity and adapt its business models accordingly?. One of the no-brainers here is that business awareness needs to coevolve with consumer awareness, otherwise nothing’s going to change, because nobody is going to buy stuff.

Think of it as a new technology to be introduced: usually you have a few early adopters who pay a lot of money for the latest cool stuff. Only later the full disruptiveness of a new technology becomes apparent once it reaches the critical level where mass market delivery starts. Think of postcapitalism as the mindset that is going to save humanity the fate of the vikings who lived in Greenland: their culture simply contained no paradigms, no ideas, no words for coping with the problems they encountered. They failed.

Here’s the thing: early adopters work at greenpeace (no money) or in silicon valley (far away), but in Germany we don’t have a scene that would identify itself as dedicated supporters of change: students apply for work at Daimler and Bosch – the author included.

What is the most important social change that postcapitalism has to address? The major environmental impact comes from those hyperconsuming one billion at the top of the pyramid as well as those some three billion people at the lower end of the pyramid. And by hyperconsumption, I’m not talking about the ultra-rich, but really about everyone in the western world. Sustainable life will require profound changes in social structure: less rich, less poor, a well rounded belly in the middle of the global middle class. Population growth is a problem? Strengthen women’s rights globally, introduce birth control (yeah, of course it’s not part of western culture, but the Chinese could do it, so could we!). You can’t grow enough food? Stop eating meat more than once a week and the problem dissolves. You’re Japanese? Stop eating so much fish – and get your government to sign treaties that protect oceanic life.

Both groups – the rich and the poor – have little in common. But wait: there was that story about the early adopters and the mass market part? Think of all those Indians who want to buy a Tata car. Combine a Tata car with betterplace.com and you have a mobility revolution on your hands.

postcapitalism

as a new word to describe the thing that’s going to come after our current economic system? For yes, we have the wrong measures, the wrong outlook on things, and our accounting is deeply flawed, not only in finance, but in all sorts of areas. There are studies on postmodernism, but none so far on postcapitalism. Let’s change that – let’s think about how we want to live in a constructive, unbiased way. Let’s stop playing games with our future.

There are a number of assumptions rarely made clear when we construct and debate the theory of free markets as a just system for economic interaction (for the workings of it these assumptions are not needed obviously); among them are:

• everyone knows the rules; possibly has even subscribed to them
• everyone has similar starting conditions – an assumption made famous in terms such as the ‘representative agent’, ‘lump sum endowments’ and ‘long-term neutrality of money’.

Still the invisible hand is supposed – like the non-existing Walrasian auctionator – to magically bring about a world in which ‘if everyone thinks of himself everyone is thought of’ prevails and social welfare is only diminished by taxation and government intervention. But there are ‘global public goods’, in anonymous environments the tragedy of the commons does occur, and no, not all are born equal. There is a huge class of problems that individuals and individual rationality and incentive will not solve, exactly because there is no incentive to the individual to contribute to the solution. The only way to solve these problems is to change the game theoretical rules of the games we play each day. One of the most powerful mechanisms to bring about social cooperation for common benefit was doubtless the company. But it was invented some day. Signs are mounting that today its M-C-M mechanism only serves the economy and no longer its creators. The neutrality of money has been ‘empirically proven’ – for a statement by O. Blanchard on the empirical evidence regarding this proposition refer to his entry in the Handbook of monetary economics. You’ll be surprised.

In 2000 appeared a paper widely cited among the econophysics community: “The statistical mechanics of money” by Dragulescu and Yakovenko, which as widely ignored by the economics profession (for a review of the literature from an economists perspective, refer to Prof. Lux from Kiel Institute for the world economy; note also the papers by John Angle starting in 1986 in the journal “Social forces”). In 2005 appeared “The social architecture of capitalism” by Ian Wright, again widely ignored by the economics profession. In 2010 appeared “Universal patterns of inequality” by Yakovenko et al. All of these papers

• could be checked against real world data and fit this data arguably better than any other theory I know of
• showed an exponential distribution of money holdings, energy consumption, income and many other indicators of material well-being over the population. The central point in this is that this high inequality was not brought about by any given social mechanism. It was pure exchange, random. Agents were all the same, they were ‘representative’. The world they lived in was a plain level field. It was not ability, talent or any other means that made people rich, and some poor. It was pure chance.

I will not argue that ability doesn’t matter, shouldn’t matter or any other silly position. I want my readers to start thinking about the privileges they enjoy and what these privileges are founded upon. The income distribution is shaped by the social setup, and the ‘perfectly free’ society makes most people so badly off that their freedom comes at a rather unattractive price.
The paper by Wright (2005) showed that the mechanism of Manchester capitalism – employing people, paying them lump sums and keeping the multiplicative returns for the company owner – did fit US firm size distribution data, replicated the income structure, the rate with which firms went bust and were founded and a number of other statistical data readily available from US authorities.
Finally the paper by Yakovenko (2010) shows that the income distribution consists of two parts (this was already known since 2001 and probably earlier but not explained) which can be explained by different types of income: the big majority of the population lives in the exponential distribution, which can be explained by additive income components. Those in the Pareto tails – the ultra rich – earn multiplicative income generated by those in the exponential distribution.

Imagine we would half the size of all classes in all schools. It is a fact that this would improve the experience for the teacher and the pupils. It would lead to faster, better and more creative ways to learn. Think of it: there would be double the number of teaching positions available – 350.000 more. And if we would pay them a little more, and stop to publicly denounce them we would so fundamentally have improved their working conditions we might attract a necessary number of qualified candidates.
Not only that. There would be a temporary surge in construction, because we would need more spacious schools, and we would maybe like to build them sustainable and likeable. So we would need solar panels, and better architects. So many things to be done if we were getting serious about improving education! As I can tell from experience, high school math books in this country are of mediocre quality at best.
Education is only one example. There are millions of tasks and loads of work to do that we all could probably agree on, that would benefit all. This is not restricted to high level jobs. It’s basic services: a tighter post office network, help for elderly at trains stations who regularly ask me how to use the ticket machine. Greener cities. A turn towards greener agriculture would need more personnel. More fully wooden furniture would need more forest workers, and more people to work as cabinet makers.
All of these things – and you can think of many more investments in social welfare – have one thing in common: they lack funding. Those who would like to have these services are unwilling or unable to pay for them, and those supposed to work for the offered wage do not want to, because they could not afford their own services and live more comfortably off the welfare state. I will not go into detail here why I believe that the setup of the monetary system is one of the major causes for this. All I want to point out is that there are jobs that would make everybody better off if they were created, but they are monetarily underpriced. In the same vein I argue that there are jobs in this society that make only a pair of people better off, that create a local Pareto optimum, but are overpriced if their effect on total welfare is considered. Markets find one equilibrium (and even that is highly doubtful and a mere theoretical assumption!), but they do not find global optima. The measures used to construct the social rules governing these markets are fundamentally flawed, because they do not take into account the human side of economic activity.

The argument that studying law involves high opportunity costs and therefore justifies high salaries does not stand scrutiny: obviously the proportionality coefficient between time invested and monetary return depends quite strongly on the subject studied. While it may be argued – wrongly, I believe – that low salaries for PhD students in history are simply a market signal that they are low in demand because they yield no relevant output, this is obviously not true for the natural sciences and engineering. These people often write PhDs, and their output is highly relevant to the wellbeing of society. Their salaries however – even though often higher than average – are often cut from a certain level on – they do not scale with the impact their work has. There is a simple reason for this: in my experience people studying these subjects are driven by a need to succeed – as most high achievers – but the reward structure is to a bigger fraction non-monetary.
It is often argued that wages are supposed to attract people to jobs nobody wants to do. The opposite is the case in lawyer case: here it is (supposedly) a job only few can do, hence labor supply is low. The engineering example shows that this is a fallacy: only very few can do the physics or engineering required for our high tech civilization. The difference lies in the motivation and what brings this motivation about.
The argument does also not work for binmen: here the wage is low and nobody wants to do the job; yet if they were to go on strike, there would be a public outcry. Their contribution to society is poorly rewarded, and here the non-monetary return that drives engineers is lacking. I will come back to this idea below.
I’d like to point out here that there are fundamental needs of each individual as well as our civilization as a whole that are indispensable but totally underpriced because they seem to be available in plentiful supply. This is a fundamental misallocation. All markets, labor markets included, are abysmally bad at pricing risk correctly. If you need an economic example, think of the oil price or the Argentinian debt default in the 90s.

In none of my contributions my notion of productivity was as primitive as the criticism suggested. What I meant was not physical output; rather I was talking about the contribution to the community, productivity in terms of welfare improvement for all. I do not think that it is possible to talk about ‘labour value’, but I do indeed think that there is something like a ‘just wage’ (gerechter Lohn) – an old concept, that sheds light again on the fact that distributive justice is a question of economic concern. The question is merely: how does the distributive mechanism work? What does a just mechanism look like? Here Rawls and other philosophers may help us out. In the end however it’s a social contract, and that contract should be signed by all – as I argue below, a condition that is hard to satisfy in reality and puts an especially heavy burden of responsibility on the ‘elite’.
But I will not go down that path of ‘unscientific’ philosophy (even though a market is a highly social construction as well and therefore far from ‘neutral’, ‘natural’ or ‘scientific’ – even though economic theory I would argue has been sold to the public in a way that was overly mysterious and made it look like a science. For a review of this point with regard to the monetary system, refer to G. Ingham: “The nature of money” (2004)).
Rather, I’d like to point out that there are strong hints that our current measures of welfare as well as personal success are highly problematic. Prof. Hans Diefenbacher talked his work on the construction of a replacement for GDP and its growth as an indicator how ‘well’ society is doing – note again, that ‘well’ implies here that economic activity should serve people, not the other way around. Other measures such as the HDI or the HPI, price and value basic needs and a healthy environment stronger than economic or monetary success indicators today.
What does this have to do with our lawyer problem? Let me be very plain and naïve here: it might be possible to think of a society where money is not the main driver in the search for justice. It may be that the locally Pareto optimal outcome between the lawyer and his client is socially suboptimal – how the math works out is a question of the definition of the measure used. And it can be argued that the measures are just wrong: nobody ever showed that u’ > 0 and u’’ < 0. On the contrary, happiness research, behavioral economics and
psychologist come to very different – and much more complicated – conclusions.

With this entry I hope to invite debate. I’d like to stress that my point of view is by no means fixed on these matters, and that this is bound to go right to the heart of what it means to live together as a community: in a state, a company or even on a planet. I do know that this is not apparent in public debate, and I will try to show that Economics as it is practiced today implies a value system – it is not neutral. I apologize for all error – and I’m a hobby philosopher.

I wrote: “What upsets me is that most people in our [western] societies by now [implicit: after years of free market liberalism pervading public discourse] believe that they actually deserve this money (in english we use different words for deserve and earn, in German I used its equivalent), in the sense that they have a right to this income because they create a corresponding (or equivalent) value”.

I further suggested that the state could introduce a rule defining the maximum allowable inequality in society – I was overly specific at the time, I proposed a 10 standard deviation maximum income difference without giving a justification. There is none, and why this is in my view not a problem will be explained below.

I did not question the freedom of the labour market today: obviously there are agents willing to pay these salaries for the service rendered. Assuming a free labour market (or more specific: a free market for legal services), this outcome (the payment of high salaries) is exactly the theoretical Pareto optimum.

“I only think that the free market is misallocating here, it is locked in an optimum that is on a societal level (i.e. adding all utilities) sub-optimal. There is no doubt that the outcome [of high salaries for legal services] is locally optimal for the lawyer and his client – the client possibly losing millions, the lawyer earning a high income – and whenever we take something away from any of them, we violate the Pareto rule.”

I brought up the example of Jugde Judy, earning more than a supreme court judge, and I mentioned that from my point of view the law firm is exploiting the lawyer, as would be the case in any capitalistic system.

There have been several criticisms to my suggestions, and I will try to answer them in turn. Some of them are serious, and should be debated and some are simple misunderstandings. I have to admit that I will disappoint anybody expecting a completely scientific argument: societal rules are not subject to natural laws, setups can be changed, and indeed do change with the ideas that prevail in a society. I argue that economic questions are quintessentially social questions, and that questions of redistribution and distribution of fortunes cannot be separated from a notion of what a ‘good life’ means. Hence the question about social rules and setups is not purely about efficiency, it is deeply connected to theorizing about justice. To understand where I intellectually come from at the moment and for deeper insights into these matters I would like to recommend “The nature of money” by G. Ingham, “Collapse” by J. Diamond, and (a bad but leading book in the field) “Small is beautiful” by E. Schumacher. Another valuable book is Dowd: “Capitalism and its economics” which unfortunately has a righteous and arrogant tone to it. I further strongly suggest to read up on literature in Econophysics, especially papers by authors such as Wright (2005) “The social architecture of capitalism” or papers by Victor Yakovenko. Michael Sandel from Harvard and John Rawls are very interesting for the debate on justice. For a libertarian view on matters, read Robert Nozick or a recent attack from Peter Sloterdijk.

Enough namedropping.

Last but not least I wish to stress that even though I frame my thoughts in notions and thought models we’re all used to, I’m trying to rethink matters from scratch. I’m not a supporter of any side in the whole capitalist vs communist debate, and not a supporter of any political party in Germany. Neither system is sustainable, neither makes us truly free. Maybe there is no such paradigm for society, maybe the goals are contradictory. I believe not, but until today I have not found a solution. But I refuse to accept the status quo as the last word on these matters.

Here we go:

1. my notion of productivity was questioned: economies today are service economies, and only because one does not ‘make screws’ it doesn’t mean someone isn’t productive
2. the high salaries become reasonable if calculated on an hourly basis
3. studying law involves high opportunity costs, rendering a high entry salary reasonable
4. lawyers deliver important contributions to society: they resolve conflict, help to increase profitability of enterprises by restructuring them and help to finance deals and investments
5. my example of 10 standard deviations does not do the trick anyway, it wouldn’t change anything in the case of the 70k€; further I had put forward no reason for this specific number. I was asked to provide a different allocation mechanism if I was really thinking the market couldn’t do the job.

On the notion of productivity and the contribution to society (1, 4)

On opportunity costs for jobs and hourly wages (2, 3)

On the failure of markets and allocation mechanisms (5)

A final remark on market mechanisms
]]> http://mailtome.wordpress.com/2010/03/02/on-the-social-construction-of-markets/feed/ 4 simatai http://mailtome.wordpress.com/2010/02/21/liu-yuxi-fruhlingsgedicht-spring-poem/ http://mailtome.wordpress.com/2010/02/21/liu-yuxi-fruhlingsgedicht-spring-poem/#comments Sun, 21 Feb 2010 12:09:55 +0000 simatai http://mailtome.wordpress.com/?p=443 ]]> It’s a blue sky out there today, a frosty day still, but winter is clearly in retreat. Looking out the window I remembered being once absorbed by a poem from the Tang dynasty, “Spring poem” by 刘禹锡 (Liu Yuxi). It is extraordinarily hard to translate I think, but here is my try at it. I first did a German translation, for German allows something that English does not: composition of nouns. That is very useful here. It is harder to translate into English also because English does not really allow static word groups without sounding strange.

春词

新妆宜面下朱楼
深锁春光一院愁
行到中庭数花朵
蜻蜓飞上玉搔头

Frühlingsgedicht

Neu bekleidet, gesetzter Miene, herab vom Purpurzimmer
tief eingeschlossen Frühlingslicht im Hof, melancholisch
gemessenen Schritts zum Atrium die Blumen zählen
eine Libelle setzt sich auf die jadene Spange, zitternd

Zunächst sollte man bemerken, daß die Zeilen eine Struktur haben: obwohl es im chinesischen Gedicht keine Worte im eigentlichen Sinne gibt, gibt es Symbolgruppen: 2-2-1-2, 2-2-2-1, 2-2-1-2, 2-2-1-2. 新妆 z.B. ist eine Kombination aus “neu, frisch” und “geschmückt, schmücken, Schmuck”. Die Übersetzung versucht, diese Kombination zu erhalten und klar zu übertragen. Obwohl klar scheint, daß wir eine schöne Frau im erblühenden Atrium eines chinesischen Adelshauses beobachten, ist sie nirgends erwähnt. Es gibt kein Subjekt, weder ein Beobachtendes noch ein Beobachtetes. 朱 bedeutet eigentlich “Scharlachrot, Zinnober”, hier mit “Purpur” übersetzt, um das majestätisch-gemessene auszudrücken, daß im Chinesischen mit dieser Farbe assoziiert ist. Die nächste Schwierigkeit ist die Bedeutung von 愁, welches eigentlich nur “besorgt, sich Sorgen machend, ängstlich” bedeutet (anxious, to worry). Es ist aber zusammengesetzt aus 秋 und 心, Herbstherz! Daher die Übersetzung als “melancholisch”. In der nächsten Zeile braucht das Chinesische zwei Zeichen 行到 um ein kurzes Konzept auszudrücken: ungewöhnlich. Daher “gemessenen” Schritts, auch wenn eigentlich nur ausgedrückt ist “sich bewegen in Richtung auf”. In der letzten Zeile eine wirkliche Schwierigkeit: die Übersetzung von 搔, krabbeln, kratzen, jucken, durcheinander bringen, stören. Zeichen für Zeichen steht nur da “Libelle fliegt auf Jade stören Kopf”. Alles klar? Während man im Deutschen annehmen könnte, die Libelle führe zu einem Juckreiz, ist meine Interpretation daß die Libelle das Bild stört: die Majestät, die Ruhe, die Melancholie, die Dekadenz des Innenhofs (ich habe ein sehr klares Bild dieses Hofs vor Augen). Nun wäre es in einem Gedicht eine ironische Wendung, plötzlich von Juckreiz zu sprechen. Daher die Übersetzung “zitternd” – die Ruhe wird gestört, das Bild verwackelt, die Libelle ist das einzige, das sich bewegt, zitternden Flügels, ein Farbenspiel. Es ist allerdings leider so, daß 搔 einen deutlich aggressiveren Ton hat als “zitternd” nahelegt.

It is interesting how different the English version turns out to be from the German:

Spring poem

Newly dressed, mien befitting, descending from her scarlet room
Into the courtyard deeply locking the light of spring, melancholic
a walk slowly towards the inner yard to count the flowers
A Dragonfly settles on her jade, importunately disturbing.

It could also be that she walks “into the melancholic courtyard [...]“.