Friday, November 15, 2019


449. Acceleration


As a former scholar of innovation, I am concerned with the following question: is innovation always good?  Of course it isn’t. The Mafia also innovates. And innovation can be compulsive, neurotic, carrying people along while they don’t really need or want  it. I discussed that in item 439 of this blog, in response to Zygmunt Bauman’s book on ‘liquid times’, which objected to the acceleration in society, of which innovation is part. I argued that according to my ‘cycle of discovery’, change alternates with stability, during which the pressure and material for change is accumulated. Innovation in not uninterrupted flux.



Hartmut Rosa also developed an argument against what he called the ‘acceleration’ in society, of technology, society itself, and life in it[i]. He explained it as follows: people no longer believe in life after death, and this limited life must be crammed full with as much experience as possible, so that production as well as consumption of goods and experiences, and ever new ones, must be as much as possible, per unit of time. This is accelerated by competition for scarce resources of money, time and attention, and a race to be the first to offer and use something new, and not miss out.



According to Rosa, this yields alienation, defined as voluntarily doing things, going along with the race, while not really wanting it. In consumption, entertainment, production, innovation, a job, increase of speed and efficiency, feeling one has to catch up, or keep up, doing ever more per unit of time. Here, innovation no longer has a goal , of improving life, and becomes an imperative in itself, a goal in itself, of ever more and ever new, at ever lower price, to consume ever more.



But there is more than this compulsion. The philosopher Sǿren Kierkegaard, a forefather

 of existentialism saw the self not as a thing one has but a process one is, a process of development. The future is uncertain, you don’t know what to expect, and as a result you

 cannot make complete, determinate plans, and this makes existence a leap, which requires trust and, I would add, courage. You are never completely right, and to see this you need the notion of God, eternity. You cannot look in all directions: looking is looking in one direction, and you cannot see the others. Language cannot say all. God is the ineffable all.



In this, in the development of self, innovation is indispensable, a condition of life, but here it has a goal, a goal of personal development. It is individual, not collective or universal.



This is my ultimate justification of innovation: it is a condition, a feature of life. Earlier, I valued innovation for its Nietzschean excitement, the romance, thrill, the thymos of crossing boundaries into the new. But it is more than that. It is part of being a self, of existence, a becoming of what you can be. Here, innovation is development, related to learning, transformation, discovery. It issues from development and enables it. it is not alienation but going somewhere you want and enjoy.  



[i] Hartmut Rosa, Alienation and Acceleration, 2013, Suhrkamp Verlag.  

Friday, November 8, 2019


448. Rhetoric

Rhetoric is effective speech: convincing and taking people in and along. There was an article about it last Saturday (26 October 2019) in the Dutch newspaper de Volkskrant by Jan Kuitenbrouwer. That recounts the main dimensions of rhetoric, according to Aristotle: logos (logic, facts, arguments), ethos moral  force), pathos (feeling), and Kairos (hitting the target, coming home, fitting, adequate to the context). The last is the least known, but now seems to dominate, together with pathos. Some of that is needed, but there should be balance; good argument, ethical, with feeling and adequacy to those addressed. As simple as possible, no more complicated than needed. Perhaps one should add beauty, good sound and literary quality. Kairos fits with the Aristotelian notion of phronesis, practical philosophy, where one takes into account the context and the conditions of those involved. Logos and ethos should not make speech too heavy, with inappropriate bathos. It should be as light as possible,  a bit like dancing, singing, please. But if logos and ethos are lacking, it becomes playing for the gallery, going for the effect, regardless of truth and ethical rectitude.

We now have politicians lying, and knowing it, for effect only, to enhance their position. 

Communication, by politicians and in the media, seems to be going that way. The imperative has become to get attention and get people along. The way of least resistance, the easiest, the popular and the entertaining.

if this is true, why? Is it laziness, not wanting to exert one’s mind, or habit, what one is used to, brought up in? It is certainly that, in part, a result of commercialisation, market ideology, presenting beauty, glamour and youth as the paragon of value, brought home by the rhetoric of advertising.

Going with the crowd and with the ‘normal’ has always been attractive. But in some cases, communication should haul people out of context, out of their ‘comfort zone’, and have the courage of the unusual.

Rhetoric, and surveillance, are now used to engineer conformity, notably in China, and thereby make things easy and streamlined. Thought and ethical reflection, about good and bad, are no longer required, can be done away with. Communication becomes manipulation.

Is that modern times? Am I old-fashioned? Should I not care? Should it be, can it be reversed, with a modicum of logos and ethos for  the sake of individualism?

I am critical of liberalism, for its lack of ethos for the other person, and of social, public feeling and responsibility, but respect for individuality and variety, difference should be maintained. In the struggle between collective and individual identity, the latter should still prevail.

Saturday, November 2, 2019


447. Does China need democracy for growth?

This is a third piece on dogmatism in economics. I discuss an article by Cheryl Long in a recent volume on ‘A research agenda for New Institutional Economics’[i]. It raises the familiar issue whether ‘ultimately’ economic growth requires the liberal democratic economic institutions familiar in the West: universal laws concerning property, access to markets, low government interference, especially in business, and low taxes.

In China things are different. Instead of universal laws of property, supported by an independent judiciary, there is decentralization to regions in the scope allowed for regulations and interference by local government and its collaboration with business, in expropriation and allocation of locations, tax, and the granting of permissions, and with an opaque sharing of interests and deals of give and take. Also, instead of legal ordering, activity to a large extent rests upon ‘guanxi’, networks of family members and partners supporting each other on the basis of reciprocity, reputation and trust. Long calls these ‘substitutes’ for Western institutions, implying that they compromise what is taken to be the ideal, i.e. the Western institutions. This raises doubt concerning Chinese perspectives for continued growth.

Yet, China has had an ongoing record of growth, and still continues to grow, albeit less, ostensibly due to trade conflicts with the US. So, perhaps one should consider the possibility of other paths to growth than only Western institutions. What might be the rationale for that?

The diversity of associations between local government and business, in China, yields competition between regions that may stimulate growth. It also turns the country into a huge laboratory of experiments in economic arrangements that may be a source of innovation. And after all, in other countries there have also been experiments with public-private enterprise.

Second, concerning the guanxi, in Japan also, trust networks of family and associates play an important role in business.[ii] That has the possible downside of locking activities into the network, closing it off to possibly more productive alternatives and inspiration from outside. On the other hand, the alternative of extensive contracting, via the law, carries high transaction costs. As argued elsewhere in this blog, innovation is a crucial source of growth, and under the uncertainty of innovation trust is needed as a ‘leap of faith’, backed up by  relational goods. And apart from its instrumental value, trust may also yield a higher intrinsic value of relationships.

Third, concerning government involvement, much of economic growth in the West has also arisen from government initiatives and subsidies, i.e. in defence industries and its spinoffs. The EU offers large subsidies to a variety of projects in research and development. Japan also has based its prosperity partly on large government planned and financed projects.

So, it may not be good news politically, but a sense of realism compels one to recognize other paths to growth than democratic institutions.      



[i] Cheryl Long, ‘The China experience: an institutional approach’, in: Claude Ménard & Mary M. Shirley (eds.), A research agenda for New Institutional Economics, Cheltenham UK: Edward Elgar, 2018, p. 135-142.
[ii] Bart Nooteboom, ‘Uncertainty and the economic need for trust’, in Masamichi Sasaki (ed), Trust in contemporary society, Leiden: Brill, 2019, p. 60-76.

Saturday, October 26, 2019


446. How rational is altruism?

In this blog I discussed several aspects of altruism. How would an economist deal with it?

Altruism, recall, is defined as making a sacrifice to someone else without being sure of an adequate return.

What an economist would probably say first, as has indeed been claimed, is that under the pressure of competition one cannot afford it. To survive one needs to grasp every possible opportunity for profit. In fact, the pressure of competition is often not so sharp, with firms doing all they can to soften it, in limits to competition.

However that may be, suppose that nevertheless altruism is observed? The economist, seeking to explain everything on the basis of the maximisation of some ‘objective function’ under constraints, would say that then it must be rational, and that it can be reconstructed by including in the objective function a reward in the form of feeling good about making the sacrifice.

The problem with this is as follows. Assuming that the sacrifice is material, i.e. monetary, in the form of profit foregone, the benefit is not material but ….., yes what? Is it a feeling of moral duty, or a personal sense of empathy, or friendship, or love (agape), or response to a need, or a habit, or a favour in return to a favour received, or creating a good reputation?

Is it clear to the decision maker himself which is at issue? Is he honest to himself about the motive? Recall the issue of limited freedom of the will, according to which many, perhaps most decisions are made subconsciously, by impulse, which then are often rationalized afterwards. Could one still call that rational? 

And suppose he knew which motive was at play, how measurable would its benefit be? The ‘value’ of it would be uncertain, dependent on contingencies the decision maker cannot fathom. If the party the sacrifice is made to also has limited freedom of the will, who can say how he will respond?  How measurable is all this? If not, what remains of the notion of maximizing an objective function?

One should recognize that here, as in many other cases, there is uncertainty in the sense that one does not know all the things that could happen, and what the costs and benefits would be. Then, one cannot calculate and be rational in that sense. One operates by hunch or guess, or more or less at random. Not knowing what the outcome will or even can be, one needs the courage of making a leap of faith, relying on one’s intuitive hunches and impulse.

Research shows that often decisions made that way are surprisingly effective. It is just that one cannot explain how. After all, we operate subconsciously but effectively on the basis of routines in so many everyday activities.

Algorithms operated by ‘platform businesses’ such as Google and Facebook can predict your choices better, on the basis of masses of data collected on your conduct and choices, than you can yourself. Could one still maintain that our choices are rational?    


   

Friday, October 18, 2019


445. The dogma of efficiency

The good thing about institutional economics is that it does not take markets for granted but investigates how institutions may enable, disable or pervert markets.

Institutions can be formal and written, such as property rights, access to markets (competition law), and a variety of government regulations (for the environment, advertising, labour conditions, etc.). There are also unwritten, informal, cultural effects, such as norms and customs of behaviour, with underlying ethics and values. Language is an institution that enables communication.

There still is, even among institutional economists, the dogma that all institutional analysis should be based on the assumption of efficiency, as recently propounded by Douglas Allen, in a book ‘Research agenda for New Institutional Economics’.[i] Allen defined efficiency as the outcome of the maximization of a utility function under constraints. If an institution appears inefficient, that is because one has neglected some part of he utility function or some side condition

This is in itself an institution, stating the rule of the game for institutional economists to belong to the tribe.

Here, Allen quotes Coase, one of the founding fathers of institutional economics as saying that ‘.. to not appreciate that institutions are efficiently chosen is to end up doing welfare economics that “ultimately dissolves into a study of aesthetics and morals”’.

Now, I would not claim aesthetics as a basis for the study of institutions, but I would certainly include morals as perhaps the most important aspect of the role of culture in the making of institutions. Trust, for example is based, in part, on morals. It is risible to denigrate morals in the way that Coase did.

There are two problems with the dogma. The first is methodological. The claim that institutions are efficient is taken to be true by definition, therefore is not falsifiable and therefore not scientific.

The second problem is substantive. The assumption of efficiency appears to ignore the vast evidence that people routinely make decisions out of ignorance, mistake, impulse and irrational shortcuts to decisions (called ‘heuristics’). Developed in social psychology, all this is now part of behavioural economics.

Now, the response to this criticism of the dogmatic economist would be that this conduct only seems irrational, inefficient, because one has not included the proper goals or constraints of conduct. But that only confirms, or deepens, the methodological problem. All conduct becomes rational even if it is not rational.

The solution of the dogmatist would be to rationalize the heuristics by including in the objective function the cost of mental effort and delay of rational analysis. In this way one can rationalize any conduct, no matter how absurd, by including the assumption that this what people want. The point is, of course that no matter how you twist it, the fact remains that the conduct is irrational.

A whole industry of ‘nudging’ is developing, where policymakers or business strategists develop ways to improve the rationality of conduct, by affecting (‘nudging’) preferences and habits, the way heuristics work, to improve their optimality, by showing how choice can be improved, or by sheer manipulation.

This requires the recognition of inefficiency and irrationality.  
      


[i] Douglas Allen, ‘Recognizing and solving institutional puzzles’, in: Claude Menard & Mary H. Shirley, A research agenda for New Institutional Economics, Cheltenham UK: Edward Elgar, 2018, p. 269-277.

445. The dogma of efficiency



The good thing about institutional economics is that it does not take markets for granted but investigates how institutions may enable, disable or pervert markets.



Institutions can be formal and written, such as property rights, access to markets (competition law), and a variety of government regulations (for the environment, advertising, labour conditions, etc.). There are also unwritten, informal, cultural effects, such as norms and customs of behaviour, with underlying ethics and values. Language is an institution that enables communication.



There still is, even among institutional economists, the dogma that all institutional analysis should be based on the assumption of efficiency, as recently propounded by Douglas Allen, in a book ‘Research agenda for New Institutional Economics’.[i] Allen defined efficiency as the outcome of the maximization of a utility function under constraints. If an institution appears inefficient, that is because one has neglected some part of he utility function or some side condition.



This is in itself an institution, stating the rule of the game for institutional economists to belong to the tribe.



Here, Allen quotes Coase, one of the founding fathers of institutional economics as saying that ‘.. to not appreciate that institutions are efficiently chosen is to end up doing welfare economics that “ultimately dissolves into a study of aesthetics and morals”’.



Now, I would not claim aesthetics as a basis for the study of institutions, but I would certainly include morals as perhaps the most important aspect of the role of culture in the making of institutions. Trust, for example is based, in part, on morals. It is risible to denigrate morals in the way that Coase did.



There are two problems with the dogma. The first is methodological. The claim that institutions are efficient is taken to be true by definition, therefore is not falsifiable and therefore not scientific.



The second problem is substantive. The assumption of efficiency appears to ignore the vast evidence that people routinely make decisions out of ignorance, mistake, impulse and irrational shortcuts to decisions (called ‘heuristics’). Developed in social psychology, all this is now part of behavioural economics.



Now, the response to this criticism of the dogmatic economist would be that this conduct only seems irrational, inefficient, because one has not included the proper goals or constraints of conduct. But that only confirms, or deepens, the methodological problem. All conduct becomes rational even if it is not rational.



The solution of the dogmatist would be to rationalize the heuristics by including in the objective function the cost of mental effort and delay of rational analysis. In this way one can rationalize any conduct, no matter how absurd, by including the assumption that this what people want. The point is, of course that no matter how you twist it, the fact remains that the conduct is irrational.



A whole industry of ‘nudging’ is developing, where policymakers or business strategists develop ways to improve the rationality of conduct, by affecting (‘nudging’) preferences and habits, the way heuristics work, to improve their optimality, by showing how choice can be improved, or by sheer manipulation.



This requires the recognition of inefficiency and irrationality.  

       



[i] Douglas Allen, ‘Recognizing and solving institutional puzzles’, in: Claude Menard & Mary H. Shirley, A research agenda for New Institutional Economics, Cheltenham UK: Edward Elgar, 2018, p. 269-277.

Friday, October 11, 2019


444. Two forms of identity politics

From a piece by James Meek, in the London Review of Books (15 august, page 9), I learn that there are two forms of identity politics.

There is an isolationist form, where people withdraw into an outsider, victimised role, of feeling excluded, discriminated against, ridiculed, looked down upon. That can arise from a background of belief, or identity, in feminism, LHBT, a past of slavery, religion, profession or lack of it, appearance, race, etc.

The second is the totalitarian form, where, overtly or tacitly, a ruling class claims to represent a dominant culture, with an exclusive right, or duty, to rule everyone else, with the claim of representing the ‘voice of the people’. The classic Republican definition, Meek tells us, of identity politics is ‘privileging one’s membership of a minority group over one’s responsibility to the nation as a whole’.


Meek shows that before Margaret Thatcher broke it up, in the UK the conservative party held such a stance of a natural position to rule the realm. And now, Meek argues, it is back, with Boris Johnson, impelled forward by Farage, in a sub-majority identity politics of Brexiteers that arrogates the power to impose a no-deal Brexit, even if it takes setting aside parliament.

Boris had to jump on that bandwagon for two reasons. First, to jump in the window of opportunity to realise his dream of becoming prime minister. Second, to prevent Farage from appropriating the electorate that demands Brexit now, without further delay.

One irony is that Brexit was demanded to regain control of national sovereignty, while now the move is contemplated to dodge parliamentary sovereignty.

Another irony is that in its glorification of the nation, this identity politics is isolationist on the global level. Or so it claims, for that is what Brexit voters wanted: a return to good old ‘little England’. In fact, however, Boris Johnson harbours a globalist ideology of unfettered international trade without the lamented restrictions imposed by the EU.

While isolationist identity politics demands special treatment, the totalitarian form does the opposite: it demands conformity, subordination to the cultural norms of the dominant ideology.

The British case reveals a fundamental threat to democracy, as does the present case of the US. Democracy requires compromise between opposing views. As told by Meek, this is unattractive to the corresponding electorate, who abhor having their ideology, with their perceived identity, diluted, and demotivating for the politicians and policy makers involved, because their ideals and goals need to be transmogrified in the compromise.

Unified, homogenised totalitarianism can parade itself as pure in its principles and unified goals. The electorate is showing a taste for such heroic, ‘can-do’ mentality, in contrast with the muddling of fragmented democracy, in its bumbling shuffle to and fro. This shows up in the lack of coherence in the opposition, in Britain as well as in the US. This yields a one-sided battle that democracy will lose.

Here is another paradox. Strong government, in imposing its will, in the UK and the US, goes together with a rightist, laissez faire view of surrendering government to markets.

All this is a nail in the coffin of society.                

Friday, October 4, 2019


443. Freedom, economy and basic income

A virtue of liberal society is freedom of choice, or part of it. Such freedom requires two things: freedom to make a choice, selecting from options, with little constraint, in ‘negative freedom’. It also requires that one have a choice, options to choose from, and the means to realise them, in ‘positive freedom’.

A familiar idea of economics is ‘quid pro quo’: to get something you must give something. To have money one must earn it. There is no free lunch. The idea of an unconditional basic income (BI), with no condition of work and no obligations, seems to go against that principle.

That is no doubt part of the deeply rooted political resistance to a BI, as inimical to a market-based, liberal society. But it is not.

For poor people, however, the virtue of a BI is that it frees people from the stranglehold of poverty, with constant worry about food, ability to pay for bills, educate children, sapping opportunity. strength and initiative to get out of ‘the poverty trap’.

A BI increases negative freedom, from the shackles of poverty, as well as positive freedom, in lending some access to resources for improvement. But why not use the usual avenue of loans to set up enterprise? That should be promoted, as is happening with ‘micro credit’, but a problem remains that the poor lack ‘collateral’ to cover the loan, and in case of default the pit of poverty would deepen.

Time and again, experiments or practice of basic income, unconditional but often only for some, the trapped poor, and for some time, show that it works. There is evidence from Brazil, India, Rwanda, Ghana, Ethiopia, Kenia and Malawi. People receiving the benefit generally do not spend it on consumption but on some investment to improve their economic position. It is also used to get children to go to school who before had to contribute child labour for the family to survive. They use it to buy a sewing machine to make clothes to sell, a fishing net, or boat, or to sink a water well, together with others. So, here we have a non-economic thing with beneficial economic as well as social outcomes. A BI is a means to economic development.

But at the same time, there must also be economic freedom, in absence of corruption, access to markets, ownership rights, and fair legal process, for people not to robbed of the investments they make, and to earn their returns.

A BI is also an efficient means of development aid, more efficient than aid in the form of goods produced elsewhere and shipped and distributed in developing countries, often on the basis of ill-informed guesses about needs, costs of transport and distribution, and with spillage in corruption.

The BI can efficiently be allocated through cell phones that are now available everywhere, also in developing countries.

And concerning ideology: it is not that the recipients do not do something for the BI, it is just that they do it after, not before receiving it.

In sum, economy and basic income can go well together, complementing each other. Institutions of economic freedom are needed for BI to have its positive effect, with the negative freedom of preventing constraints for enterprise, while BI provides the positive fre