August 13, 2018

Upward Mobility — Pop Music Style

I had a different post planned for this week, but then I heard a song over the gym soundtrack last week that perfectly illustrates the dynamics of social capital and upward mobility and the perils of the rags-to-riches journey. It also captures an attitude that often accompanies that feeling of having your nosed pressed up against the glass: wanting to move up but feeling blocked. That’s a lot of economics to pack into one pop song, so I just had to feature it.

I talked about all of that in the very first post in this series just a bit over a year ago, when I wondered out loud whether money can make us happy:

I mean, all these famous (and mostly rich) people are entitled to their opinion, but we’d like to find out for ourselves if money could make us happy — we’re pretty sure we could handle it.

Rapper Travie McCoy was pretty sure he could handle it, too. He wrote a song saying so — the one I heard at the gym — then lived his own upward mobility rise, fall, and eventual comeback. His experience couldn’t be more different than that of the 9.9 percenters we heard from last week. Apparently the social capital of the pop music red velvet rope club isn’t the same as the club covered by Forbes.

McCoy teamed up with Bruno Mars to do the song back in 2010. Obama was president, we were just coming off the Great Recession, it was five years after Hurricane Katrina and four years before Bruno Mars did his first Super Bowl halftime. Last time I checked, the song’s official video was closing in on 330 Million views. Obviously it hit a sweet spot. The song made an appearance on Glee— the unofficial version I found had nearly a million views — more hitting a sweet spot.

Judging from what happened next, McCoy might have been wrong about whether he could handle it. A “whatever happened to Travie McCoy?” search suggests his big hit didn’t give him the life or make him the person he visualized in the song. Among other things, there was a steep decline into opioid then heroin addiction, but since then he has clawed his way back into the music scene.

We’ll let the song deliver its economic lessons on its own terms. If you want to take a short break for a catchy tune, you can watch either the official video or the unofficial Glee version below. (The latter is an excellent cover, with the lyrics spruced up for prime time TV, as reflected in the lyrics below.)

I wanna be a billionaire so frickin’ bad
Buy all of the things I never had
I wanna be on the cover of Forbes Magazine
Smiling next to Oprah and the Queen

Oh every time I close my eyes
I see my name in shining lights
Yeah, a different city every night oh right
I swear the world better prepare
For when I’m a billionaire

Yeah I would have a show like Oprah
I would be the host of everyday Christmas
Give Travie a wish list
I’d probably pull an Angelina and Brad Pitt
And adopt a bunch of babies that ain’t never had **it
Give away a few Mercedes like here lady have this
And last but not least grant somebody their last wish
It’s been a couple months that I’ve been single so
You can call me Travie Claus minus the Ho Ho
Get it, hehe, I’d probably visit where Katrina hit
And damn sure do a lot more than FEMA did
Yeah can’t forget about me stupid
Everywhere I go Imma have my own theme music

Oh every time I close my eyes
I see my name in shining lights
A different city every night oh right
I swear the world better prepare
For when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire

I’ll be playing basketball with the President
Dunking on his delegates
Then I’ll compliment him on his political etiquette
Toss a couple milli in the air just for the heck of it
But keep the five, twenties tens and bens completely separate
And yeah I’ll be in a whole new tax bracket
We in recession but let me take a crack at it
I’ll probably take whatever’s left and just split it up
So everybody that I love can have a couple bucks
And not a single tummy around me would know what hungry was
Eating good sleeping soundly
I know we all have a similar dream
Go in your pocket pull out your wallet
And put it in the air and sing

I wanna be a billionaire so frickin’ bad
Buy all of the things I never had
I wanna be on the cover of Forbes Magazine
Smiling next to Oprah and the Queen
Oh every time I close my eyes I see my name in shining lights
A different city every night all right
I swear the world better prepare for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire

I wanna be a billionaire so frickin’ bad!

More upward mobility stories coming up — one of them is my own.

Mobility and Meritocracy

Occupy got the math wrong. They weren’t the 99%, they were the 90%. And that extra 9% makes things much worse for them.

Of the top 10%, the stratospheric 0.1% wears a visible-from-space economic inequality target. Not so the 9.9%: they’re folks like you and me — the Horatio Alger heroes of our times, people like Peter Boies (we met him last time). Ironically, though, a closer look reveals that they’ve done such a perfect job of upward mobility that they’ve pulled up the ladder behind themselves. They didn’t mean to, that’s just the way it worked out. Which means the 90% are quite likely to remain the Heathcliffes of the world, blocked by the red velvet rope, barred by the glass ceiling.

Says who? Says the 9.9%, and they ought to know. They’ve become the New American Meritocracy — or Aristocracy, depending on who’s analyzing the data. And now that they’ve got the Central Park view, the rest of us have to deal with the implacable security guard. (I saw one of those once, at the entrance to a 5th Avenue luxury condo high rise. He looked like Clubber Lang from Rocky III, had positioned himself feet defiantly apart and arms crossed in the main entrance revolving door, so that you had to move him to move it. Don’t even think about it.)

I learned about this new social class recently from three different sources. The first was Richard V. Reeves and his book Dream Hoarders and his Brookings Institute monograph Saving Horatio Alger (we looked at those last time). The second was philosopher Matthew Stewart, author of numerous books and a recent article for The Atlantic called The 9.9 Percent is the New American Meritocracy. The third was Steven Brill, founder of The American Lawyer and Court TV, author of the book Tailspin: The People and Forces Behind America’s Fifty-Year Fall—and Those Fighting to Reverse It and also the writer of a Time Magazine feature called How Baby Boomers Broke America.

Reeves, Stewart, and Brill are all members of the 9.9%. All three got their by rising up from below. And all three cite the same economic and related social data to support their conclusion that their class has barred the way for the rest of us. Pause for a moment and wonder, as I did, why would they write books and articles to implicate themselves in that way? It’s easy to suspect a bad case of Thriver (not Survivor) Guilt, but after reading their work, I think it’s because their success turned into an ideology buster: not only are the Horatio Alger condos sold out, but Clubber Lang is barring the way to any newcomers, and that kind of thing just doesn’t happen in America.

Until it does.

I’ll let Matthew Stewart speak for the others, quoting from his article in The Atlantic:

I’ve joined a new aristocracy now, even if we still call ourselves meritocratic winners. To be sure, there is a lot to admire about my new group, which I’ll call—for reasons you’ll soon see—the 9.9 percent. We’ve dropped the old dress codes, put our faith in facts, and are (somewhat) more varied in skin tone and ethnicity. People like me, who have waning memories of life in an earlier ruling caste, are the exception, not the rule.

By any sociological or financial measure, it’s good to be us. It’s even better to be our kids. In our health, family life, friendship networks, and level of education, not to mention money, we are crushing the competition below.

The meritocratic class has mastered the old trick of consolidating wealth and passing privilege along at the expense of other people’s children. We are not innocent bystanders to the growing concentration of wealth in our time. We are the principal accomplices in a process that is slowly strangling the economy, destabilizing American politics, and eroding democracy. Our delusions of merit now prevent us from recognizing the nature of the problem that our emergence as a class represents. We tend to think that the victims of our success are just the people excluded from the club. But history shows quite clearly that, in the kind of game we’re playing, everybody loses badly in the end.

So what kind of characters are we, the 9.9 percent? We are mostly not like those flamboyant political manipulators from the 0.1 percent. We’re a well-behaved, flannel-suited crowd of lawyers, doctors, dentists, mid-level investment bankers, M.B.A.s with opaque job titles, and assorted other professionals—the kind of people you might invite to dinner. In fact, we’re so self-effacing, we deny our own existence. We keep insisting that we’re “middle class.”

One of the hazards of life in the 9.9 percent is that our necks get stuck in the upward position. We gaze upon the 0.1 percent with a mixture of awe, envy, and eagerness to obey. As a consequence, we are missing the other big story of our time. We have left the 90 percent in the dust—and we’ve been quietly tossing down roadblocks behind us to make sure that they never catch up.

If you want more on this topic, I recommend starting with their articles, and then their books. They’re all well-researched and well-written, honest and personally disclosing, and economically and socially remarkable. Plus, for me personally, they illuminate a dimension of my own career and economic journey that were always a bit of a mystery to me. We’ll talk about that next time.

 

 

The End of Horatio Alger

“I know perfectly well that men in a race run at unequal rates of speed.
I don’t want the prize given to the man who is not fast enough to
win it on his merits, but I want them to start fair.”

~Teddy Roosevelt

In economic terms, a fair start is about equal opportunity. There’s no more enduring version of that particular ideal than the rags-to-riches story codified into the American Dream by Horatio Alger, Jr. during the Gilded Age of Andrew Mellon, John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, and the rest of the 19th Century Robber Barons. If they can do it, so can the rest of us, given enough vision, determination, hard work, and moral virtue — that was Alger’s message. And according to Roughrider Teddy and politicians like him, government’s job is to guarantee equal opportunity for all, then get out of the way and let the race to riches begin.

These days, however, it seems as though the notion of a fair start is a thing of the past — so says Richard V. Reeves in his book Dream Hoarders, which we looked at briefly last time. Reeves begins by confessing that his disenchantment over the demise of the Horatio Alger ideal will no doubt seem disingenuous because he didn’t grow up American and is now a member of the Red Velvet Rope Club himself:

As a Brookings senior fellow and a resident of an affluent neighborhood in Montgomery County, Maryland, just outside of DC, I am, after all, writing about my own class.

I am British by birth, but I have lived in the United States since 2012 and became a citizen in late 2016. (Also, I was born on the Fourth of July.) There are lots of reasons I have made America my home. But one of them is the American ideal of opportunity. I always hated the walls created by social class distinctions in the United Kingdom. The American ideal of a classless society is, to me, a deeply attractive one. It has been disheartening to learn that the class structure of my new homeland is, if anything, more rigid than the one I left behind and especially so at the top.

My new country was founded on anti-hereditary principles. But while the inheritance of titles or positions remains forbidden, the persistence of class status across generations in the United States is very strong. Too strong, in fact, for a society that prides itself on social mobility.

Reeves also wrote a Brookings Institute monograph called Saving Horatio Alger: Equality, Opportunity, and the American Dream, in which he said the following:

Vivid stories of those who overcome the obstacles of poverty to achieve success are all the more impressive because they are so much the exceptions to the rule. Contrary to the Horatio Alger myth, social mobility rates in the United States are lower than in most of Europe. There are forces at work in America now — forces related not just to income and wealth but also to family structure and education — that put the country at risk of creating an ossified, self-perpetuating class structure, with disastrous implications for opportunity and, by extension, for the very idea of America.

The moral claim that each individual has the right to succeed is implicit in our “creed,” the Declaration of Independence, when it proclaims “All men are created equal.”

There is a simple formula here — equality plus independence adds up to the promise of upward mobility — which creates an appealing image: the nation’s social, political, and economic landscape as a vast, level playing field upon which all individuals can exercise their freedom to succeed.

Many countries support the idea of meritocracy, but only in America is equality of opportunity a virtual national religion, reconciling individual liberty — the freedom to get ahead and “make something of yourself” — with societal equality. It is a philosophy of egalitarian individualism. The measure of American equality is not the income gap between the poor and the rich, but the chance to trade places.

The problem is not that the United States is failing to live up to European egalitarian principles, which use income as a measure of equality. It is that America is failing to live up to American egalitarian principles, measured by the promise of equal opportunity for all, the idea that every child born into poverty can rise to the top.

There’s a lot of data to back up what Reeves is saying. See, e.g., this study from Stanford, which included these findings:

Parents often expect that their kids will have a good shot at making more money than they ever did.

But young people entering the workforce today are far less likely to earn more than their parents when compared to children born two generations before them, according to a new study by Stanford researchers.

A new study co-authored by Stanford economist Raj Chetty describes an economic portrait of the fading American Dream; growing inequality appears to be the main cause for the steady decline

Reeves and Stanford’s researchers aren’t the only ones who feel that way. We’ll hear from a couple others next time.

 

Kevin Rhodes writes about individual growth and cultural change, drawing on insights from science, technology, disruptive innovation, entrepreneurship, neuroscience, psychology, and personal experience, including his own unique journey to wellness — dealing with primary progressive MS through an aggressive regime of exercise, diet, and mental conditioning. Check out his latest LinkedIn Pulse article: “Rolling the Rock: Lessons From Sisyphus on Work, Working Out, and Life.”

Nose Pressed Up Against the Glass

You’re on the outside looking in. What you want is only a window pane away, but it might as well be on Mars. Novelist Maria E. Andreu captures the feeling:

“There is a wonderful scene in the 1939 film version of Wuthering Heights . . . in which Heathcliff and Catherine sneak on to the grounds of the Linton house at night. The Lintons, the rich neighbors, are having a grand party. Heathcliff and Catherine watch through the window, unseen. It’s exactly what’s meant by ‘nose pressed up against the glass,’ watching but not being able to participate.

“You can see a lot in their faces as they watch the others dance. Catherine, the daughter of a landed ‘gentleman,’ gets a look that lets you know that she’s intrigued, beginning to want to let go of her wild childhood and take her place in the Lintons’ world. Healthcliff, the servant who adores Catherine, knows that even if he could stop being poor, he would never belong there. He will always be watching from outside the glass.”

Nose pressed up against the glass — it’s an enduring image in literature and in life. Ms. Andreu continues:

I’ve thought about this scene a lot. I’ve used the image in my writing. It illustrates how I’ve felt sometimes, able to see ‘the good life’ but not able to live it. Most of my life, the Heathcliff in me has weighed heavy inside my heart.

But then one day the magic happened, and suddenly she found herself transported to the other side of the window pane:

Yesterday, I got a rave review for my novel that comes out in a month and a half. In my email, I got an invitation to a launch party for another author’s book. I packed to go to a book signing and remembered I needed an extra outfit for an industry cocktail party and the ‘members only’ dinner afterwards with people from my publishing house.

If that’s not being inside the party, I don’t know what is.

Someone has opened the door of the party for some fresh air, seen me lurking, and extended a hand of friendship to let me in. It is an unbelievable feeling. I live a life of impossible splendor, of magical beauty, of infinite luck. And I am so deeply grateful.

We’d feel the same way, if we ever got so lucky. (Assuming we’ve been working hard enough to get lucky — here’s The Quote Investigator on where that saying came from.)

In economic terms, the distance between Heathcliff and the Lintons is a matter of social capital. Ryan Avent, author of The Wealth of Humans, distinguishes between human capital and social capital. Human capital, he says, is a particularly focused and useful form of knowledge that an individual gains through education, hard work, experience, on-the-job training, etc. It’s the hard work part of the formula. Social capital, on the other hand, is the opportunity part, and it’s not just personal, it’s cultural. Avent says it’s “like human capital . . . but is only valuable in particular contexts, within which a critical mass of others share the same social capital.”

For those not already in the social capital club, converting human capital into social capital requires upward mobility. Ms. Andreu’s upward mobility moment was getting her “members only” invitation – official permission to duck under the red velvet rope and join an exclusive gathering where she could schmooze the “others [who] share the same social capital.” Heathcliff, on the other hand, never got his upward mobility moment. As a result, there wasn’t just a glass window pane between him and the Lintons, there was a glass ceiling.

Nose pressed against the glass… glass ceiling… we’ve heard those expressions before. Nowadays, another glass metaphor has entered the economic lexicon: the “glass floor, which protects the upper middle class against the risk of downward mobility.” (My emphasis. The quote is from Dream Hoarders:  How the American Upper Middle Class is Leaving Everyone Else in the Dust, Why That is a Problem, and What to Do About It by Richard V. Reeves.)

Hoping to move up? Afraid of moving down? These days, it’s hard to do either. And if you’re hoping to move up, there’s one additional, elusive element required for membership in the red velvet club:  the notion of identity — the need to be the kind of person who belongs there. In this short video (click the image below), Michael Port, author of the bestseller Book Yourself Solid, asks, “What makes [red velvet rope people] who they are?” He answers that it’s “their quality, their characteristics, their personality — things that are innate, are part of who they are as people, not necessarily their circumstances.”

We’ll be looking lots more at upward mobility and social capital in the weeks to come.

 

Kevin Rhodes writes about individual growth and cultural change, drawing on insights from science, technology, disruptive innovation, entrepreneurship, neuroscience, psychology, and personal experience, including his own unique journey to wellness — dealing with primary progressive MS through an aggressive regime of exercise, diet, and mental conditioning. Check out his latest LinkedIn Pulse article: “Rolling the Rock: Lessons From Sisyphus on Work, Working Out, and Life.”

The End of the Firm

 

“The official line is that we all have rights and live in a democracy. Other unfortunates who aren’t free like we are have to live in police states. These victims obey orders or else, no matter how arbitrary. The authorities keep them under regular surveillance. State bureaucrats control even the smallest details of everyday life. The officials who push them around are answerable only to higher-ups. Informers report regularly to the authorities. All this is supposed to be a very bad thing — and so it is, although it is nothing but a description of the modern workplace.”

Bob Black, The Abolition of Work and Other Essays (1985)

Peter Drucker’s famous dictum “If you can’t measure it, you can’t manage it” established math and management as the indisputable co-sovereigns of the modern workplace. As it turns out, Drucker apparently never actually said that[1], but the concept has dominated the workplace since the advent of factories and railroads, telegraphs and electricity. Consider, for example, what it’s like to work at Amazon.

But, while math and management prospered together under the Industrial Revolution’s mechanistic worldview, today’s digitally-driven marketplace demands a freshly-nuanced management style, or in some cases, no management at all. Either idea challenges an even more foundational historical assumption: that commerce is best conducted by a firm that must be managed. Eliminate the firm and you eliminate the need to manage it. Get rid of both, and you have an unimaginably different “description of the modern workplace” than Bob Black wrote about 33 years ago.

Last time, we looked at an article by science writer and artificial intelligence engineer George Zarkadakis called “The Economy Is More A Messy, Fractal Living Thing Than A Machine.” In it, he says this about the firm:

Ever since the invention of the assembly line, corporations have been like medieval cities: building walls around themselves and then trading with other “cities” and consumers. Companies exist because of the need to protect production from volatile market fluctuations, and because it’s generally more efficient to consolidate the costs of getting goods and services to market by putting them together under one roof. So said the British economist Ronald Coase in his paper “The Nature of the Firm” (1937).

“Why do firms exist?” asks Ryan Avent in his book The Wealth of Humans: Work, Power, and Status in the Twenty-First Century (2016). He provides the same answer as Zarkadakis:

According to a 1937 paper by Nobel Prize-winning economist Ronald Coase, it’s to bring all the necessary people, processes, and information under one roof, instead of contracting it all out. In exchange for the convenience of one-stop shopping, one-size-fits-all, employees trade their independence and the possibility of greater personal market returns for the firm’ management structure and financial capital, which — as long as they conform to the company culture – the way we do things around here — promises to keep them on task and to deliver a paycheck in return.

Today, however, the new “gig economy” is fast making that unimaginable the new normal — and that’s only the beginning, says Zarkadakis:

Now, in an era of Ubers-for-everything, companies are changing into platforms that enable, rather than enact, core business processes. The cost of reaching customers has dropped dramatically thanks to the ubiquity of digital networks, and production is being pushed outside the company wall, on to freelancers and self-employed contractors. Market and price fluctuations have been defanged as machine learning and predictive analytics help companies manage such ructions, and on-demand services for labour, office space and infrastructure allow them to be more responsive to changing conditions. Coase’s theory is nearing its expiry date.

The so-called “gig economy” is only the beginning of a profound economic, social and political transformation. For the moment, these new ways of working are still controlled by old-style businesses models – platforms that essentially sell “trust” via reviews and verification, or by plugging into existing financial and legal systems. Airbnb, eBay and Uber succeed in making money out of other people’s work and assets because they provide guarantees for good seller-buyer behaviour, while connecting to the “old world” of banks, courts and government. But this hybrid model of doing digital business is about to change.

Avent concurs, and describes two key dynamics of the new anti-firm business model, operating culture and rent — how a business gets things done, and whether it owns the kinds of assets it can let others use, for a price:

Current workplace trends are bidding fair to tear down the firm model of operating. If you take employees out from under the firm umbrella — make them mostly freelancers, outsource jobs to countries on the make — then what’s left of value is mostly the company’s way of getting things done and the assets for which it can charge rent, in the economic sense of billing a premium for scarce assets. How assets become scarce becomes an essential policy-making function. These become essential “intangible” or “social” capital, replacing “human” capital.]

We’ll be talking more about social capital, rent, and other changing dynamics of the workplace.


[1] According to the Drucker Institute, he never did. And see this Forbes article for a rousing condemnation of the idea.

 

Kevin Rhodes writes about individual growth and cultural change, drawing on insights from science, technology, disruptive innovation, entrepreneurship, neuroscience, psychology, and personal experience, including his own unique journey to wellness — dealing with primary progressive MS through an aggressive regime of exercise, diet, and mental conditioning. Check out his latest LinkedIn Pulse article: “Rolling the Rock: Lessons From Sisyphus on Work, Working Out, and Life.”

Who Controls the World?

One fine afternoon autumn day in Cincinnati I watched transfixed as a gigantic flock of migratory birds swarmed over the woods across the street. I didn’t know it then, but I was watching a “complex, self-organizing system” in action. Schools of fish, ant colonies, human brains — and even the financial industry — all exhibit this behavior. And so does “the economy.”

James B. Glattfelder holds a Ph.D. in complex systems from the Swiss Federal Institute of Technology. He began as a physicist, became a researcher at a Swiss hedge fund, and now does quantitative research at Olsen Ltd. in Zurich, a foreign exchange investment manager. He begins his TED Talk with two quotes about the Great Recession of 2007-2008:

When the crisis came, the serious limitations of existing economic and financial models immediately became apparent.

There is also a strong belief, which I share, that bad or over simplistic and overconfident economics helped create the crisis.

Then he tells us where they came from:

You’ve probably all heard of similar criticism coming from people who are skeptical of capitalism. But this is different. This is coming from the heart of finance. The first quote is from Jean-Claude Trichet when he was governor of the European Central Bank. The second quote is from the head of the UK Financial Services Authority. Are these people implying that we don’t understand the economic systems that drive our modern societies?

That’s a rhetorical question, of course:  yes they are, and no we don’t. As a result, nobody saw the Great Recession coming, with its layoffs carnage and near-collapse of the global economy, or its “too big to fail” bailouts and generous bonuses paid to its key players.

Glattfelder tackles what that was about, from a complex systems perspective. First, he dismisses two approaches we’ve already seen discredited.

Ideologies: “I really hope that this complexity perspective allows for some common ground to be found. It would be really great if it has the power to help end the gridlock created by conflicting ideas, which appears to be paralyzing our globalized world.  Ideas relating to finance, economics, politics, society, are very often tainted by people’s personal ideologies.  Reality is so complex, we need to move away from dogma.”

Mathematics: “You can think of physics as follows. You take a chunk of reality you want to understand and you translate it into mathematics. You encode it into equations. Then, predictions can be made and tested. But despite the success, physics has its limits. Complex systems are very hard to map into mathematical equations, so the usual physics approach doesn’t really work here.”

Then he lays out a couple key features of complex, self-organizing systems:

It turns out that what looks like complex behavior from the outside is actually the result of a few simple rules of interaction. This means you can forget about the equations and just start to understand the system by looking at the interactions.

And it gets even better, because most complex systems have this amazing property called emergence. This means that the system as a whole suddenly starts to show a behavior which cannot be understood or predicted by looking at the components. The whole is literally more than the sum of its parts.

Applying this to the financial industry, he describes how his firm studied the Great Recession by analyzing a database of controlling shareholder interests in 43,000 transnational corporations (TNCs). That analysis netted over 600,000 “nodes” of ownership, and over a million connections among them. Then came the revelation:

It turns out that the 737 top shareholders have the potential to collectively control 80 percent of the TNCs’ value. Now remember, we started out with 600,000 nodes, so these 737 top players make up a bit more than 0.1 percent. They’re mostly financial institutions in the US and the UK. And it gets even more extreme. There are 146 top players in the core, and they together have the potential to collectively control 40 percent of the TNCs’ value.

737 or 146 shareholders — “mostly financial institutions in the U.S. and the U.K.” — had the power to control 80% or 40% of the value of 43,000 multinational corporations. And those few hundreds — for their own accounts and through the entities they controlled — bought securitized sub-prime mortgages until the market imploded and nearly brought down the global economy valued in the tens of trillions dollars — giving a whole new meaning to the concept of financial leverage. In what might be the economic understatement of the 21st Century, Glattfelder concludes:

This high level of concentrated ownership means these elite owners possess an enormous amount of leverage over financial risk worldwide. The high degree of control you saw is very extreme by any standard. The high degree of interconnectivity of the top players in the core could pose a significant systemic risk to the global economy.

It took a lot of brute number-crunching computer power and some slick machine intelligence to generate all of that, but in the end there’s an innate simplicity to it all. He concludes:

[The TNC network of ownership is] an emergent property which depends on the rules of interaction in the system. We could easily reproduce [it] with a few simple rules.

The same is true of the mesmerizing flock of birds I watched that day; here’s a YouTube explanation of the three simple rules that explain it[1].


[1] What I saw was a “murmuration” of birds — see this YouTube video for an example. It is explained by a form of complex system analysis  known as “swarm behavior.”

 

Kevin Rhodes writes about individual growth and cultural change, drawing on insights from science, technology, disruptive innovation, entrepreneurship, neuroscience, psychology, and personal experience, including his own unique journey to wellness — dealing with primary progressive MS through an aggressive regime of exercise, diet, and mental conditioning. Check out his latest LinkedIn Pulse article: “Rolling the Rock: Lessons From Sisyphus on Work, Working Out, and Life.”

Reframing “The Economy”

We’ve seen that conventional thinking about “the economy” struggles to accommodate technologies such as machine learning, robotics, and artificial intelligence — which means it’s ripe for a big dose of reframing. Reframing is a problem-solving strategy that flips our usual ways of thinking so that blind spots are revealed, conundrums resolved, polarities synthesized, and barriers transformed into logistics.

The Santa Fe Institute is on the reframing case: Rolling Stone called it “a sort of Justice League of renegade geeks, where teams of scientists from disparate fields study the Big Questions.” W. Brian Arthur is one of those geeks. He’s also onboard with PARC — a Xerox company in “the business of breakthroughs” — and has written two seminal books on complexity economics: Complexity and the Economy (2014) and The Nature of Technology: What it Is and How it Evolves (2009). Here’s his pitch for reframing “the economy”:

The standard way to define the economy — whether in dictionaries or economics textbooks — is as a “system of production and distribution and consumption” of goods and services. And we picture this system, “the economy,” as something that exists in itself, as a backdrop to the events and adjustments that occur within it. Seen this way, the economy becomes something like a gigantic container . . . , a huge machine with many modules or parts.

I want to look at the economy in a different way. The shift in thinking I am putting forward here is . . . like seeing the mind not as a container for its concepts and habitual thought processes but as something that emerges from these. Or seeing an ecology not as containing a collection of biological species, but as forming from its collection of species. So it is with the economy.

The economy is a set of activities and behaviors and flows of goods and services mediated by — draped over — its technologies: the of arrangements and activities by which a society satisfies its needs. They include hospitals and surgical procedures. And markets and pricing systems. And trading arrangements, distribution systems, organizations, and businesses. And financial systems, banks, regulatory systems, and legal systems. All these are arrangements by which we fulfill our needs, all are means to fulfill human purposes.

George Zarkadakis is another Big Questions geek. He’s an artificial intelligence Ph.D. and engineer, and the author of In Our Own Image: Savior or Destroyer? The History and Future of Artificial Intelligence (2016). He describes his complexity economics reframe in a recent article “The Economy Is More A Messy, Fractal Living Thing Than A Machine”:

Mainstream economics is built on the premise that the economy is a machine-like system operating at equilibrium. According to this idea, individual actors – such as companies, government departments and consumers – behave in a rational way. The system might experience shocks, but the result of all these minute decisions is that the economy eventually works its way back to a stable state.

Unfortunately, this naive approach prevents us from coming to terms with the profound consequences of machine learning, robotics and artificial intelligence.

Both political camps accept a version of the elegant premise of economic equilibrium, which inclines them to a deterministic, linear way of thinking. But why not look at the economy in terms of the messy complexity of natural systems, such as the fractal growth of living organisms or the frantic jive of atoms?

These frameworks are bigger than the sum of their parts, in that you can’t predict the behaviour of the whole by studying the step-by-step movement of each individual bit. The underlying rules might be simple, but what emerges is inherently dynamic, chaotic and somehow self-organising.

Complexity economics takes its cue from these systems, and creates computational models of artificial worlds in which the actors display a more symbiotic and changeable relationship to their environments. Seen in this light, the economy becomes a pattern of continuous motion, emerging from numerous interactions. The shape of the pattern influences the behaviour of the agents within it, which in turn influences the shape of the pattern, and so on.

There’s a stark contrast between the classical notion of equilibrium and the complex-systems perspective. The former assumes rational agents with near-perfect knowledge, while the latter recognises that agents are limited in various ways, and that their behaviour is contingent on the outcomes of their previous actions. Most significantly, complexity economics recognises that the system itself constantly changes and evolves – including when new technologies upend the rules of the game.

That’s all pretty heady stuff, but what we’d really like to know is what complexity economics can tell us that conventional economics can’t.

We’ll look at that next time.

 

Kevin Rhodes writes about individual growth and cultural change, drawing on insights from science, technology, disruptive innovation, entrepreneurship, neuroscience, psychology, and personal experience, including his own unique journey to wellness — dealing with primary progressive MS through an aggressive regime of exercise, diet, and mental conditioning. Check out his latest LinkedIn Pulse article: “Rolling the Rock: Lessons From Sisyphus on Work, Working Out, and Life.”

What is “The Economy” Anyway?

Throughout this series, we’ve heard from numerous commentators who believe that conventional economic thinking isn’t keeping pace with the technological revolution, and that polarized ideological posturing is preventing the kind of open-minded discourse we need to reframe our thinking.

In this short TED talk, the author[1] of Americana: A Four Hundred Year History of American Capitalism suggests that we unplug the ideological debate and instead adopt a less combative and more digital-friendly metaphor for how we talk about the economy:

Capitalism . . . is this either celebrated term or condemned term. It’s either revered or it’s reviled. And I’m here to argue that this is because capitalism, in the modern iteration, is largely misunderstood.

In my view, capitalism should not be thought of as an ideology, but instead should be thought of as an operating system.

When you think about it as an operating system, it devolves the language of ideology away from what traditional defenders of capitalism think.

The operating system metaphor shifts policy agendas away from ideology and instead invites us to consider the economy as something that needs to be continually updated:

As you have advances in hardware, you have advances in software. And the operating system needs to keep up. It needs to be patched, it needs to be updated, new releases have to happen. And all of these things have to happen symbiotically. The operating system needs to keep getting more and more advanced to keep up with innovation.

But what if the operating system has gotten too complex for the human mind to comprehend? This recent article from the Silicon Flatirons Center at the University of Colorado[2] observes that “Human ingenuity has created a world that the mind cannot master,” then asks, “Have we finally reached our limits?” The question telegraphs its answer: In many respects, yes we have. Consider, for example, the air Traffic Alert and Collision Avoidance System (TCAS) that’s responsible for keeping us safe when we fly:

TCAS alerts pilots to potential hazards, and tells them how to respond by using a series of complicated rules. In fact, this set of rules — developed over decades — is so complex, perhaps only a handful of individuals alive even understand it anymore.

While the problem of avoiding collisions is itself a complex question, the system we’ve built to handle this problem has essentially become too complicated for us to understand, and even experts sometimes react with surprise to its behaviour. This escalating complexity points to a larger phenomenon in modern life. When the systems designed to save our lives are hard to grasp, we have reached a technological threshold that bears examining.

It’s one thing to recognise that technology continues to grow more complex, making the task of the experts who build and maintain our systems more complicated still, but it’s quite another to recognise that many of these systems are actually no longer completely understandable.

The article cites numerous other impossibly complex systems, including the law:

Even our legal systems have grown irreconcilably messy. The US Code, itself a kind of technology, is more than 22 million words long and contains more than 80,000 links within it, between one section and another. This vast legal network is profoundly complicated, the functionality of which no person could understand in its entirety.

In an earlier book[3], Steven Pinker, author of the recent optimistic bestseller Enlightenment Now (check back a couple posts in this series) suggests that the human brain just isn’t equipped for the complexity required of modern life:

Maybe philosophical problems are hard not because they are divine or irreducible or workaday science, but because the mind of Homo Sapiens lacks the cognitive equipment to solve them. We are organisms, not angels, and our minds are organs, not pipelines to the truth. Our minds evolved by natural selection to solve problems that were life-and-death matters to our ancestors, not to commune with correctness or to answer any question we are capable of asking.

In other words, we have our limits.

Imagine that.

So then… where do we turn for appropriately complex economic thinking? According to “complexity economics,” we turn to the source: the economy itself, understood not by reference to historical theory or newly updated metaphor, but on its own data-rich and machine-intelligent terms.

We’ll go there next time.


[1] According to his TED bio, Bhu Srinivasan “researches the intersection of capitalism and technological progress.”

[2] Samuel Arbesman is the author. The Center’s mission is to “propel the future of technology policy and innovation.”

[3] How The Brain Works, which Pinker wrote in 1997 when he was a professor of psychology and director of The Center for Cognitive Neuroscience at MIT.

 

Kevin Rhodes would create workplace utopia if he could. But since he doesn’t trust himself to do that, he writes this blog instead. Thanks for reading!

Economics + Math = Science?

The human brain is wired to recognize patterns, which it then organizes into higher level models and theories and beliefs, which in turn it uses to explain the past and present, and to predict the future. Models offer the consolation of rationality and understanding, which provide a sense of control. All of this is foundational to classical economic theory, which assumes we approach commerce equipped with an internal rational scale that weighs supply and demand, cost and benefit, and that we then act according to our assessment of what we give for what we get back. This assumption of an internal calculus has caused mathematical modeling to reign supreme in the practice of economics.

The trouble is, humans aren’t as innately calculating as classical economics would like to believe — so says David Graeber, professor of anthropology at the London School of Economics, in his new book Bullshit Jobs:

According to classical economic theory, homo oeconomicus, or “economic man” — that is, the model human being that lies behind every predication made by the discipline — is assumed to be motivated by a calculus of costs and benefits.

All the mathematical equations by which economists bedazzle their clients, or the public, are founded on one simple assumption: that everyone, left to his own devices, will choose the course of action that provides the most of what he wants for the least expenditure of resources and effort.

It is the simplicity of the formula that makes the equations possible: if one were to admit that humans have complicated emotions, there would be too many factors to take into account, it would be impossible to weigh them, and predictions would not be made.

Therefore, while an economist will say that while of course everyone is aware that human beings are not really selfish, calculating machines, assuming they are makes it possible to explain.

This is a reasonable statement as far as it goes. The problem is there are many dimensions of human life where the assumption clearly doesn’t hold — and some of them are precisely in the domain of what we like to call the economy.

Economics’ reliance on mathematics has been a topic of lively debate for a long time:

The trouble . . . is that measurement and mathematics do not guarantee the status of science – they guarantee only the semblance of science. When the presumptions or conclusions of a scientific theory are absurd or simply false, the theory ought to be questioned and, eventually, rejected. The discipline of economics, however, is presently so blinkered by the talismanic authority of mathematics that theories go overvalued and unchecked.

In 1886, an article in Science accused economics of misusing the language of the physical sciences to conceal “emptiness behind a breastwork of mathematical formulas.” More recently, Deirdre N. McCloskey’s The Rhetoric of Economics (1998) and Robert H. Nelson’s Economics as Religion (2001) both argued that mathematics in economic theory serves, in McCloskey’s words, primarily to deliver the message “Look at how very scientific I am.”

After the Great Recession, the failure of economic science to protect our economy was once again impossible to ignore. In 2009, the Nobel Laureate Paul Krugman tried to explain it in The New York Times with a version of the mathiness diagnosis. “As I see it,” he wrote, “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” Krugman named economists’ “desire . . . to show off their mathematical prowess” as the “central cause of the profession’s failure.”

The result is people . . . who trust the mathematical exactitude of theories without considering their performance – that is, who confuse math with science, rationality with reality.

There is no longer any excuse for making the same mistake with economic theory. For more than a century, the public has been warned, and the way forward is clear. It’s time to stop wasting our money and recognise the high priests for what they really are: gifted social scientists who excel at producing mathematical explanations of economies, but who fail, like astrologers before them, at prophecy.

The New Astrology: By fetishising mathematical models, economists turned economics into a highly paid pseudoscience,” Aeon Magazine.

Economists may bristle at being compared to astrologers, but as we have seen, their skill at prediction seems about comparable.

In the coming weeks we’ll look at other models emerging from the digital revolution, consider what they can tell us that classical economic theory can’t, and how they are affecting the world of work.

 

Kevin Rhodes would create workplace utopia if he could. But since he doesn’t trust himself to do that, he writes this blog instead. Thanks for reading!

Protopia

Last week we heard professional skeptic Michael Shermer weigh in as an optimistic believer in progress (albeit guardedly — I mean, he is a skeptic after all) in his review of the new book It’s Better Than It Looks. That doesn’t mean he’s ready to stake a homestead claim on the Utopian frontier: the title of a recent article tells you what you need to know about where he stands on that subject: “Utopia Is A Dangerous Ideal: We Should Aim For Protopia.”[1]

He begins with a now-familiar litany of utopias that soured into dystopias in the 19th and 20th Centuries. He then endorses the “protopian” alternative, quoting an oft-cited passage in which Kevin Kelly[2] coined the term.

Protopia is a state that is better today than yesterday, although it might be only a little better. Protopia is much much harder to visualize. Because a protopia contains as many new problems as new benefits, this complex interaction of working and broken is very hard to predict.

Doesn’t sound like much, but there’s more to it than appears. Protopia is about incremental, sustainable progress — even in the impatient onslaught of technology. Kelly’s optimism is ambitious — for a full dose of it, see his book The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future (2016). This is from the book blurb:

Much of what will happen in the next thirty years is inevitable, driven by technological trends that are already in motion. In this fascinating, provocative new book, Kevin Kelly provides an optimistic road map for the future, showing how the coming changes in our lives — from virtual reality in the home to an on-demand economy to artificial intelligence embedded in everything we manufacture — can be understood as the result of a few long-term, accelerating forces.

These larger forces will completely revolutionize the way we buy, work, learn, and communicate with each other. By understanding and embracing them, says Kelly, it will be easier for us to remain on top of the coming wave of changes and to arrange our day-to-day relationships with technology in ways that bring forth maximum benefits.

Kelly’s bright, hopeful book will be indispensable to anyone who seeks guidance on where their business, industry, or life is heading — what to invent, where to work, in what to invest, how to better reach customers, and what to begin to put into place — as this new world emerges.

Protopian thinking begins with Kelly’s “bright, hopeful” attitude of optimism about progress (again, remember the thinkers we heard from last week). To adopt both optimism and the protopian vision it produces, we’ll need to relinquish our willful cognitive blindness, our allegiance to inadequate old models and explanations, and our nostalgic urge to resist and retrench.

Either that, or we can just die off. Economist Paul Samuelson said this in a 1975 Newsweek column:

As the great Max Planck, himself the originator of the quantum theory in physics, has said, science makes progress funeral by funeral: the old are never converted by the new doctrines, they simply are replaced by a new generation.

Planck himself said it this way, in his Scientific Autobiography and Other Papers:

 A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.

Progress funeral by funeral[3]. . . . If that’s what it takes, that’s the way protopian progress will be made — in the smallest increments of “better today than yesterday” we will allow. But I somehow doubt progress will be that slow; I don’t think technology can wait.

Plus, if we insist on “not in my lifetime, you don’t,” we’ll miss out on a benefit we probably wouldn’t have seen coming: technology itself guiding us as we stumble our way forward through the benefits and problems of progress. There’s support for that idea in the emerging field of complexity economics — I’ve mentioned it before, and we’ll look more into it next time.


[1] The article is based on Shermer’s recent book Heavens on Earth: The Scientific Search for the Afterlife, Immortality, and Utopia.

[2] Kelly is a prolific TED talker — revealing his optimistic protopian ideas. Here’s his bio.

[3] See the Quote Investigator’s history of these quotes.

 

Kevin Rhodes would create workplace utopia if he could. But since he doesn’t trust himself to do that, he writes this blog instead. Thanks for reading!

Utopia Already

“If you had to choose a moment in history to be born, and you did not know ahead of time who you would be—you didn’t know whether you were going to be born into a wealthy family or a poor family, what country you’d be born in, whether you were going to be a man or a woman—if you had to choose blindly what moment you’d want to be born you’d choose now.”

Pres. Barack Obama, 2016

It’s been a good month for optimists in my reading pile. Utopia is already here, they say, and we’ve got the facts to prove it.

Harvard Professor Steven Pinker is his own weather system. Bill Gates called Pinker’s latest book Enlightenment Now “My new favorite book of all time.”

Pinker begins cautiously: “The second half of the second decade of the third millennium would not seem to be an auspicious time to publish a book on the historical sweep of progress and its causes,” he says, and follows with a recitation of the bad news sound bytes and polarized blame-shifting we’ve (sadly) gotten used to. But then he throws down the optimist gauntlet: “In the pages that follow, I will show that this bleak assessment of the state of the world is wrong. And not just a little wrong — wrong, wrong, flat-earth wrong, couldn’t-be-more-wrong wrong.”

He makes his case in a string of data-laced chapters on progress, life expectancy, health, food and famine, wealth, inequality, the environment, war and peace, safety and security, terrorism, democracy, equal rights, knowledge and education, quality of life, happiness, and “existential” threats such as nuclear war. In each of them, he calls up the pessimistic party line and counters with his version of the rest of the story.

And then, just to make sure we’re getting the point, 322 pages of data and analysis into it, he plays a little mind game with us. First he offers an eight paragraph summary of the prior chapters, then starts the next three paragraphs with the words “And yet,” followed by a catalogue of everything that’s still broken and in need of fixing. Despite 322 prior pages and optimism’s 8-3 winning margin, the negativity feels oddly welcome. I found myself thinking, “Well finally, you’re admitting there’s a lot of mess we need to clean up.” But then Prof. Pinker reveals what just happened:

The facts in the last three paragraphs, of course, are the same as the ones in the first eight. I’ve simply read the numbers from the bad rather the good end of the scales or subtracted the hopeful percentages from 100. My point in presenting the state of the world in these two ways is not to show that I can focus on the space in the glass as well as on the beverage. It’s to reiterate that progress is not utopia, and that there is room — indeed, an imperative — for us to strive to continue that progress.

Pinker acknowledges his debt to the work of Swedish physician, professor of global health, and TED all-star Hans Rosling and his recent bestselling book Factfulness. Prof. Rosling died last year, and the book begins with a poignant declaration: “This book is my last battle in my lifelong mission to fight devastating ignorance.” His daughter and son-in-law co-wrote the book and are carrying on his work — how’s that for commitment, passion, and family legacy?

The book leads us through ten of the most common mind games we play in our attempts to remain ignorant. It couldn’t be more timely or relevant to our age of “willful blindness,” “cognitive bias,” “echo chambers” and “epistemic bubbles.”

Finally, this week professional skeptic Michael Sheerer weighed in on the positive side of the scale with his review of a new book by journalist Gregg Easterbrook — It’s Better Than It Looks. Shermer blasts out of the gate with “Though declinists in both parties may bemoan our miserable lives, Americans are healthier, wealthier, safer and living longer than ever.” He also begins his case with the Obama quote above, and adds another one:

As Obama explained to a German audience earlier that year: “We’re fortunate to be living in the most peaceful, most prosperous, most progressive era in human history,” adding “that it’s been decades since the last war between major powers. More people live in democracies. We’re wealthier and healthier and better educated, with a global economy that has lifted up more than a billion people from extreme poverty.”

A similar paeon to progress begins last year’s blockbuster Homo Deus (another of Bill Gates’ favorite books of all time). The optimist case has been showing up elsewhere in my research, too. Who knows, maybe utopia isn’t such a bad idea after all. In fact, maybe it’s already here.

Now there’s a thought.

All this ferocious optimism has been bracing, to say the least — it’s been the best challenge yet to what was becoming a comfortably dour outlook on economic reality.

And just as I was beginning to despair of anyone anywhere at any time ever using data to make sense of things, I also ran into an alternative to utopian thinking that both Pinker and Shermer acknowledge. It’s called “protopia,” and we’ll look at it next time.

 

Kevin Rhodes would create workplace utopia if he could. But since he doesn’t trust himself to do that, he writes this blog instead. Thanks for reading!

Utopia for Realists, Continued

Like humor and satire, utopias throw open the windows of the mind.

Rutger Bregman

Continuing with Rutger Bregman’s analysis of utopian thinking that we began last week:

Let’s first distinguish between two forms of utopian thought. The first is the most familiar, the utopia of the blueprint. Instead of abstract ideals, blueprints consist of immutable rules that tolerate no discussion.

There is, however, another avenue of utopian thought, one that is all but forgotten. If the blueprint is a high-resolution photo, then this utopia is just a vague outline. It offers not solutions but guideposts. Instead of forcing us into a straitjacket, it inspires us to change. And it understands that, as Voltaire put it, the perfect is the enemy of the good. As one American philosopher has remarked, ‘any serious utopian thinker will be made uncomfortable by the very idea of the blueprint.’

It was in this spirit that the British philosopher Thomas More literally wrote the book on utopia (and coined the term). More understood that utopia is dangerous when taken too seriously. ‘One needs to be believe passionately and also be able to see the absurdity of one’s own beliefs and laugh at them,’ observes philosopher and leading utopia expert Lyman Tower Sargent. Like humor and satire, utopias throw open the windows of the mind. And that’s vital. As people and societies get progressively older they become accustomed to the status quo, in which liberty can become a prison, and the truth can become lies. The modern creed — or worse, the belief that there’s nothing left to believe in — makes us blind to the shortsightedness and injustice that still surround us every day.

Thus the lines are drawn between utopian blueprints grounded in dogma vs. utopian ideals arising from sympathy and compassion. Both begin with good intentions, but the pull of entropy is stronger with the former — at least, so says Rutger Bregman, and he’s got good company in Sir Thomas More and others. Blueprints require compliance, and its purveyors are zealously ready to enforce it. Ideals on the other hand inspire creativity, and creativity requires acting in the face of uncertainty, living with imperfection, responding with resourcefulness and resilience when best intentions don’t play out, and a lot of just plain showing up and grinding it out. I have a personal bias for coloring outside the lines, but I must confess that my own attempts to promote utopian workplace ideals have given me pause.

For years, I led interactive workshops designed to help people creatively engage with their big ideas about work and wellbeing — variously tailored for CLE ethics credits or for general audiences. I realized recently that, reduced to their essence, they employed the kinds of ideals advocated by beatnik-era philosopher and metaphysicist Alan Watts. (We met him several months ago — he’s the “What would you do if money were no object?” guy. )

The workshops generated hundreds of heartwarming “this was life-changing” testimonies, but I could never quite get over this nagging feeling that the participants mostly hadn’t achieved escape velocity, and come next Monday they would be back to the despair of “But everybody knows you can’t earn any money that way.”

I especially wondered about the lawyers, for whom “I hate my job but love my paycheck” was a recurrent theme. The Post WWII neoliberal economic tide floated the legal profession’s boat, too, but prosperity has done little for lawyer happiness and well-being. True, we’re seeing substantial quality-of-life change in the profession recently (which I’ve blogged about in the past), but most have been around the edges, while overall lawyers’ workplace reality remains a bulwark of what one writer calls the “over-culture” — the overweening force of culturally-accepted norms about how things are and should be — and the legal over-culture has stepped in line with the worldwide workplace trend of favoring wealth over a sense of meaning and value.

Alan Watts’ ideals were widely adopted by the burgeoning self-help industry, which also rode the neoliberal tide to prosperous heights. Self-help tends to be long on inspiration and short on grinding, and sustainable creative change requires large doses of both. I served up both in the workshops, but still wonder if they were just too… well, um…beatnik … for the law profession. I’ll never know — the guy who promoted the workshops retired, and I quit doing them. If nothing else, writing this series has opened my eyes to how closely law practice mirrors worldwide economic and workplace dynamics. We’ll look more at that in the coming weeks.

 

Kevin Rhodes would create workplace utopia if he could. But since he doesn’t trust himself to do that, he writes this blog instead. Thanks for reading!