Asymmetric Information in Service Economies
Markets break down when information isn't distributed evenly. For example, in the legal field, lawyers know more about the value of their work than their customers do. (For example, OJ Simpson spent $50,000 a day for his Dream Team of lawyers). Since people only need a lawyer occasionally, it's hard to get referrals from friends. You also don't know whether you'll need your lawyer again, so even something like a review system breaks down for lawyers since nobody wants to bad-mouth one.
As the world moves from a commodity-based economy to a service-heavy one, the notion of efficient prices disappears, leaving us with prices based on equilibriums set via the market for value signals. Furthermore, prices vary widely and distribute logarithmically, with the top providers charging exponential multiples above equilibria.
Whatever utopia was supposed to have happened because of productivity gains reducing the prices of everything has instead left us on a hedonic treadmill where we spend all our excess GDP on priceless services.
Bubble economics might be the path to socialism
While socialism has yet to arrive, it may come indirectly through economic bubbles such as the current venture capital market. 2015 saw the rise of the "unicorns," so-called startups with billion-dollar or greater valuations, with Uber being the poster-child, raising cumulatively $15 billion as of 2016, putting its valuation at $62.5 billion. But this so-called "bubble" might instead be a symptom of excess GDP growth. When there is more wealth than the wealthy can spend on yachts and low-yield bonds, their excess money has to find more exciting ventures, like startups. Money is like steam, and when pressure builds up in one area, it finds release somewhere elsewhere.
In a way, the startup bubble has increased tacit socialism. All the extra startup jobs have helped low-education people into lightweight desk work and relatively high salaries. Likewise, society benefits from free software and services pumped out by startups eager to build market-share quickly, often in a vain attempt to achieve a monopoly and return value to investors. If 90% of what we consume comes from startups that eventually won't reach that monopoly state, then in a way society gets a 90% discount on everything. For example, Netflix spends billions to win the original programming race with HBO and Amazon Prime, and while the company may or may not go broke doing so, the consumer benefits from getting all this extra art on the cheap.
Everybody buys the best house they can afford, which is why GDP growth alone isn't enough to end wage laboring
Sadly, wage laboring will be a permanent condition of human existence. Even if GDP keeps increasing an average of 3% every year for the next hundred years, wage laboring won't drop much, because of the simple fact that people will always consume as much as they can: nearly everybody buys the best house they can afford or borrow. And thus, the number of people living a life of leisure will not increase substantially in the coming decades, despite the indelible increase of abundance as afforded by technology.
Fearing that Google or Wikipedia makes us dumber is just as silly as fearing that abacuses or slide rules did the same
A frequent debate in American schools around the early 1990s was whether the reliance on pocket calculators would weaken math skills. The debate is similar to the debate about subsidizing dying industries. When technology replaces a job, life is hard for the unemployed, but we achieve a net benefit in the reduced cost of goods. We might say, "Well, then people won't know how to use multiplication or times tables," but we can replace that with the phrase, "Well, people won't know how to use this thing they don't need anymore." After all, we don't lament abacuses or slide rules. When we lose our facility with times tables, we more than compensate for it by doing other things mathematically.
A roundabout example is that calculators have made it easier to build computers and smartphones which have increased technological literacy, and therefore mathematical literacy. Calculators have made it simpler to make complex video games which require players to quickly count health points versus hit points, without the aid of calculators. Calculators have made it easier to make computers, which have made screen interfaces more common, which has dramatically increased the number of characters, many of which include numbers, which the average person encounters on a daily basis.
People know as much about times tables as they need to. If their situation requires them to multiply things quickly without having easy access to a calculator, then they will learn.
How bad can irrationality be? Chance-mating is the epitome of it, and yet that's how we got here
The criticism that someone is "irrational" seems to include a theory of rational philosophy that only has two dimensions—cost and benefit—while excluding a third one: time.
When choosing a mate, for example, which is probably the most important decision someone could make, some people make that decision within a few minutes, whereas others take a year or more to decide.
The former could be said to be irrational, being completely swayed by their emotions. But many—if not most—of us are the product of chance-mating. Even though the stakes are incredibly high, to not make a snap decision and "hook-up" with someone, means you may never have a chance to hook-up with that person ever again. Maybe that's the best possible person you could've ever mated with, and because you delayed, you will miss out on a genetic recombination strategy that has proven effective over millions of years.
Likewise, in making a decision to buy a house, even small decisions can make the difference between tens of thousands of dollars owed over the lifetime of the loan. For most people, nowhere else in their life will one hour of their time make that kind of a difference. The purely rational person could spend time according to their hourly rate, by comparison-shopping or by optimizing every single item on their mortgage statement. But most people wouldn't have a problem compromising that kind of detail-oriented work. They would determine how much effort to put into the search not based on the cost-benefit, but on the time they have to seize an opportunity.
If clones played the Prisoners' Dilemma, wouldn't the dominant strategy be silence, since each player knows their copy would do the same?
Human cloning would make for interesting game theory experiments. In the case of the classic Prisoner's Dilemma, it's rational for every prisoner to rat the other one out. But in the case of human cloning, the game has one additional assumption: both parties do the same thing. The two-dimensional decision matrix then becomes one-dimensional, with only two choices: we both snitch or we both keep quiet. You can assume that whatever choice you make, the other will make too, so it's always better to choose silence.
If money organizes value, and if politics distributes value, then capitalist states are by definition corrupt
Capital is the organization of resources. Consider a mountain. By itself, it is just a hunk of rock. But when a company buys the rights to that mountain, then builds rails to it, and employs people to work on it, it becomes capital. The people, the rails, and the mountain are now organized by the capitalist into a single channel of value that they control and direct at their will.
The reason capitalist societies are corrupt, then, is not so much that money buys politicians, but that money is organized. Money and organization are one and the same. Even if there were no bribes or political donations, money could still pay lobbyists to work in the Capitol and pitch complete programs that busy—or lazy—politicians would have no time to rebut or investigate.
The few rich have always controlled the many poor because the poor can't organize. Orwell writes in 1984, "But the proles, if only they could somehow become conscious of their own strength, would have no need to conspire. They needed only to rise up and shake themselves like a horse shaking off flies." But to conspire is to organize, and organizing isn't commonly part of being poor.
Innovation predates venture capital by hundreds of thousands of years, and yet capitalism is now inextricably justified by it
The idea of capitalism as an engine of innovation is relatively recent. Up until roughly around when Adam Smith wrote The Wealth of Nations, most splendors came from centralized powers. Calculus, the Sistine Chapel, the pyramids, the discovery of the New World, and so forth, were not the products of entrepreneurs speculating as to what the market may or may not have needed. Instead, much of past greatness were collaborations between enterprising individuals and their most accessible largess, whether it's through the patronage of the church, under the purview of a national academy, or commanded for the glory of the crown.
Instead of ending poverty, trickle-down economics has given the middle-class bike lanes, 401(k)s and iPhones
If GDP growth is constant and unending, then Utopia is imminent. Optimistic futurists imagine that as technology continues to reduce the cost of producing food, clothing, and shelter, then humankind will eventually be free to live lives of leisure and creativity. And even though these futurists are not naive to assume a uniform GDP distribution, they assume that even with conservative estimates of trickle-down economics, the widespread end of long-standing human ailments is at hand.
And yet the most visible result of this GDP growth has appeared on the high-end. Now we have bikeable cities, elaborate prosthetics, lavish vacation packages, and smartphones. And these perks are concentrated among technocrats and their support class, which includes lawyers, accountants, architects, and city planners. So for a certain group of people in certain locales, utopia is already here, and GDP growth could exist to compound their pleasure ad infinitum.
In the abstract, money is clumping
As a result, a system based on money is always going to have clumps, whether it’s brain drain that takes smart people from poor nations to lands of opportunity, or whether it’s clumping in time that leads to boom-and-bust cycles. It’s this inherent clumping nature that represents its main inefficiency.
Is it acceptable if the 1% control 99% of the wealth, so long as everybody else is guaranteed happiness income?
Is it acceptable if 1% of the people control 99% of the wealth, just as long as they don't have an outsize influence on politics and everybody else is guaranteed $40,000 a year? Studies consistently show that $40,000 is roughly the point beyond which increases in income don't lead to meaningful gains in happiness. If everybody is happy, and the corrupting influence of money were hypothetically canceled, would there be anything else troubling about wealth disparity?
Maybe we're approaching the limits of capitalism
The friction costs of capitalism are so high now, that more capitalism may do more harm than good. Communism's problem was that it was inefficient, but if the efficiency problem could have been solved, without corruption (or maybe with it, still), then was there really a problem with communism? We may be seeing that answer in China. It appears capitalism's final argument was that it preserved innovation. What if innovation isn't sacrificed in a different system? There are too many moving parts in the complex goods and services we demand, such as health care, that Adam Smith's invisible hands get too tied up maximizing their individual gain, that the whole embrace weakens.
Modeling human behavior would be much easier if we reduced pleasure-seeking or happiness-seeking to just seeking
Economists mischaracterize human behavior as the rational seeking of happiness or even pleasure. Pleasure isn't the end in of itself, because there is no end, only process, and that process is about seeking, which may or may not deliver pleasure. More often than not, it doesn't. We are just driven. Maybe the idea of pleasure or happiness is thrown in as a carrot now and then. But for the most part, humans do because they do.
The cost of socks should approach zero
By now, the cost of socks should be nearly free, at least according to traditional economics. And yet, at Wal-Mart, the price of socks remains static or rising. Some of this has to do with the fact that much of Wal-Mart's costs are real estate. And yet Amazon, a company with no storefronts—and thus no real estate problem—has the same issue with pricey socks. The larger issue is that traditional economics doesn't scale. If Wal-Mart can sell a more luxe sock to more people, all of a sudden the cheaper sock disappears. And this isn't necessarily a knock on the rationality of buyers. Big retailers, for marketing or efficiency, drop or hide more affordable options. Theoretically, the bargain hunter could scour the rest of Internet and find the cheapest sock, but they would discover that only small retailers sell cheap socks, but only in bulk or with higher shipping fees than Amazon. Productivity is up, trade is up, but we can't necessarily realize those unless we realize them at scale.
The financial sector is the fat and repository of excess economic activity
The financial sector isn't really cancer. Rather it's the fat and repository of excess economic activity. It's part of a larger trend of work being more and more removed from material things. While there will always be an inflexible demand for essential services, like waiters and policemen, all the growth is happening in inessential or abstract services, like entertainment and high-technology. The mid-1950s are when the delivery of basic human needs (like food and safety) plateaued. Now innovation is in fun stuff like iPods and faster bandwidth. But even that will plateau because people are getting delirious with the fast-changing pace of technology.
The majority of American workers filter their income through simulations of human value. Farmers in America keep making corn that the government subsidies and throws away, just so we can preserve a diorama of bucolic Americana. Financial workers are playing an even more purely abstract game.
This is the essence of our post-modern existence. Our concept of real value is so warped and elevated now. The reason people can't come to grips with the financial sector is because they don't have have a concept of the absurd.
Economic swings will be larger and more frequent, and the financial industry will keep getting bigger. In 50 years, 80% of the wealth in the US will be in the financial sector. This is how the Singularity looks: people playing min-max games with monopoly money.
The logical conclusion of inexorable GDP growth is full unemployment
At some point, our society has to outgrow its obsession with low unemployment numbers. If perpetually increasing GDP is the goal of all modern economies, and if such increases are sustainable—which they have been, when taking the long-view, and including all nations—then the logical conclusion is full unemployment. At some point, the time it takes to create enough GDP for every single human being on earth to have the basics of food, clothing, and shelter should be trivial.
It appears, at the moment, that such a fantasy utopia is simply a goal-post that keeps getting pushed further back. After all, with all the material abundance of America, unemployment is still in the single digit percentages and average vacation time per year is 2-3 weeks. Why is everybody still working? For one, there is the perennial hedonic treadmill. The more money people make, the more they spend, and so they have to keep working to make up the difference. Then there is the continuing economic inequality. Many of these GDP gains are being collected a few individuals, and the actual condition of the average American stays relatively constant.
However, both trends probably have their limits. The hedonic treadmill may only apply to middle-class incomes, but after a certain point, there's more money than an individual has time to spend in a lifetime. The existence of casinos and pseudo-casinos (like the stock market) are evidence of a population that has transcended the hedonic treadmill and instead is just recycling their excess income back into the system.
Economic inequality, despite its seeming infinite excesses in history, goes through corrections. The history of war is often the history of enriched lower-classes clamoring for new powers. The increased leisure time of the middle-class, buoyed by excess GDP, will embolden them to demand more power and a larger piece of the economic pie.
At some point, high unemployment numbers will become a point of national pride.
The Market Economy of Political Discourse
If we wanted to model politics using economics, we could view political discourse as a marketplace for signals. Every utterance about a policy position has a cost and a benefit. The act of saying something requires time and calories to move your mouth. Gaining access to a platform, such as a major news channel, can also have operational costs. Then there is the cost that people may not like what you have to say. The upside being that you said something that people like which helps advance your campaign or stature.
The same model could extend to a polical action committee. For PACs, there is a cost in buying ads, and there is a benefit if those ads generate interest.
From the end-consumer's perspective, listening to political words has a cost-benefit too. It takes time and attention to watch the news. And Cable TV subscriptions cost money, as does owning a television. A benefit is entertainment. Another is information. The news informs you so that you can participate in political conversations later according to the same cost-benefit rules.
Let's say that the end-consumer goes to a party and shares some of the things they' heard. Again there are costs and benefits. It costs time and money to go to that party, as well as penalties to health for drinking alcohol or junk food. The benefit, though, is that by uttering political words they might receive affinity from other people.
In this model, politics is, by definition, capitalistic, which may explain why campaign finance reform is so difficult. The United States has periodically advanced major campaign finance regulation without making the country more democratic. Political discourse follows the same power laws of capitalism, with accumulation begetting more accumulation, and with influence consolidating into the hands of the few. The slickest politicians have the maximum cost-benefits from their rhetoric, and so they are used by the most profitable political ideas as vessels for change.
The Singularity will be economic
Money is like Ethernet, binding everybody through the 0s and 1s of stored value. The speed of the network has been rising because of new technologies, new players, and new kinds of money. Technologies include e-commerce, credit card networks, and digital currencies. Players include humans and non-humans. Human players have grown because of growing population size and because of the widening circle of moneyed players in Third World economies. Non-human players include automated trading robots. New kinds of money include forms of debt and novel investment vehicles. Together, these factors indicate that the velocity of money is growing exponentially, in a Moore's Law-like curve.
If so, then perhaps the Singularity will be economic. Riches will cascade suddenly to the corners of civilization, with the overnight emergence of a global Leisure Class, wandering around like philosophers and artists in a School of Athens, just without the necessary slave economy to support it.
The stock market is a capitalist cockfight meant to distract the middle-class and their money
Utilitarianism and rationality make a big assumption: We care about things in proportion to how much we value them
Implicit in utilitarianism and rationality is some form of proportionalism: We supposedly care about things in proportion to how much we value them. Cost-benefit are supposed to be vaguely quantified, if not numerically, at least by comparison. Some sources of utility have a higher benefit than others. Some benefits are "worth" the cost — i.e. that donut on the table provides some benefit versus some cost to your health. But even basic quantification may be moot in light of the binary nature of our ultimate utility; We only care about one or two things: not dying, and possibly, reproducing. Everything else can have noisy or random valuations since most things usually don't directly contribute to either life or death.
Instead, decision-making is more about drives. Certain thoughts are pleasing, given the right mood, context, and of course habit. It's exciting to go to a nightclub, or it's your dream to have a child. Neither of those may ever deliver "utils" worth the cost, and in many cases, as studies in positive psychology are bearing out, we are often less happy upon achieving or doing the things we think will make us happy. Our mind just isn't equipped to weigh the costs or benefits to a single decision that may be a drop in the ocean of the recurring decisions that ultimately affect our ability to survive and thrive.
We lost the lower-middle-class when factory jobs disappeared. We will lose the middle-class when service jobs disappear
The poor have always asked for alms or welfare. But what if the middle class starts seeking that too?
Productivity has been constantly rising ever since the Industrial Revolution, but the gains from that extra productivity haven't trickled down to masses as quickly. Technology has been gobbling up more and more human labor, and economists have always argued that the cost savings in consumer goods are greater than the loss in human wages. So for example, the displaced farmer's wages are theoretically balanced out by the reduced cost of food.
The first problem with this theory is that it's cold comfort to the recently unemployed farmer. The second problem is that it's not true that every dollar lost in wages gets automatically replaced by two dollars in reduced cost of consumer goods. Instead, what happens is that those savings get accumulated by capitalists.
The majority of people would be unhappy with this arrangement if it were presented to them in stark relief, so the upper class has always made bargains with the lower classes to keep them from revolt. For the lowest class, they have been given a minimal amount of welfare to keep them from forming mobs. For the middle class, the arrangement has been more complicated.
The middle class's deal has been to get creature comforts that sort of scale with productivity gains, so long as they're willing to work hard, get educated, and specialize in a profession. Everybody in the middle class is operating under a system, whether simulated or real, of a meaningful division of labor. In their head, their job harks back to a time of apprentices, blacksmiths, and cobblers all contributing to a colorful and lively city and economy.
But we're reaching a point where the productivity machine is no longer just gobbling up poor farmer jobs. It's gobbling up middle-class jobs that were once secure. The accountant is being replaced by QuickBooks. The journalist is being replaced by Twitter. It's not hard to imagine the teacher eventually being replaced by Kahn Academy.
While it's true that there has been some creative destruction, with these smart workers switching to different, more creative careers, at some point there will be no more random marketing jobs available to mop up the unemployed. You can already see that some of the substitutes for these positions, like journalist/blogger, are at a lower pay. Educated, specialized, middle-class Americans are making the same, relative to inflation, today as they were ten years ago, despite total growth in GDP per capita. It's not hard to imagine that ten years from now, middle-class Americans will be making less.
This is going to call into question the special bargain between the middle and upper classes. Middle-class welfare has crept into existence through socialist states with universal healthcare. But, so far this has been under the premise that the average dollars that a middle-class person pays in taxes are much more than the services they get back from the state.
At some point—which may already be happening—the middle class will take more than they give. Conservative parties have recently been calling into question the viability of universal health care in countries like Canada and the United Kingdom. The middle class will have to get on a direct form of welfare eventually, lest they take up arms and revolt too.