Realitista

Interview with leading economist Tomas Sedlacek: 'Ethics forms the core of economics'

Sedláček: The most positive, descriptive economic models have approached the question of how the market economy functions with complicated mathematical models for decades, but they are simply wrong or pointless at best. The real question should be: Is the economy working the way we want it to?

SPIEGEL: But it isn’t up to economists to set ethical standards.

Sedláček: Yes, it is. Ethics forms the core of economics. It leads straight to the question of the good and right way of living, or Aristotle’s concept of eudemonia. For him, maximizing benefit without maximizing good would have been pointless. A market economy without morality is a zombie system: The robots function perfectly, but in the end they leave behind a trail of devastation. We have to return to our origins and talk about the soul of the economy.

SPIEGEL: Such quasi-religious impulses must be quite foreign to both your fellow economists and the politicians you have advised.

Sedláček: The belief in progress is an eschatology used in the secular realm. There is no such thing as value-free economics. To claim that economics is value-free is a value judgment in itself — an ideological position. Every purchase decision is also a moral decision.

Cultivating Genius

The first pattern that becomes clear is the benefit of human mixing. It’s no accident that past talent clusters were all commercial trading centers, which allowed a wide diversity of people to share ideas. (Urbanization makes this mixing easier.) The same logic still applies: Research indicates that in the overall population, a 1 percent increase in the number of immigrants with college degrees leads to a 9 to 18 percent rise in patent production. Open immigration policies are a feature, not a bug.

Another recurring theme is the importance of education. All of these flourishing cultures pioneered new forms of teaching and learning. Medieval Florence saw the rise of the apprentice-master model, which let young artists learn from veteran experts. Elizabethan England made a concerted effort to educate its middle-class males, which is how William Shakespeare—the son of a glover who couldn’t sign his name—ended up getting free Latin lessons. We need to emulate these ingenious eras and encourage rampant experimentation in the education sector, whether it’s taking the Khan Academy mainstream or expanding vocational training. As T. S. Eliot once remarked, the great ages did not contain more talent. They wasted less.

The last meta-idea involves the development of institutions that encourage risk-taking. Shakespeare was lucky to have royal support for his odd tragedies, while Renaissance Florence benefited from the willingness of the Medicis to support new artistic forms, such as the use of perspective in painting. Many of these ventures failed—Shakespeare wrote several bad plays—but tolerating such failure is the only way to get a Hamlet.

This might seem like an impossibly ambitious agenda. It’s not. Bill James, the pioneer of Moneyball-style statistical baseball analysis, points out that modern America is already very good at generating geniuses. The problem is that the geniuses we’ve created are athletes. As James says, this is largely because we treat athletes differently. We encourage them when they’re young, chauffeuring our kids to practice and tournaments. We also have mechanisms for cultivating athletic talent at every step in the process, from Little League to the Majors. Lastly, professional teams are willing to take risks, betting big bucks on draft picks who never pan out. Because of these successful meta-ideas, even a small city like Topeka, Kansas—roughly the same size as Elizabethan London, James points out—can produce an athletic genius every few years.

How the Rise of the Developing World Will Help Americans

Amid all the doom and gloom, it’s good to see some hope sometimes.

Where others see the U.S. economy being overtaken by China and falling victim to long-run decline and economic stagnation, Auerswald argues that the world as a whole is on the verge of a new period of unparalleled prosperity. Powerful new technologies, new industries, and new modes of connecting to the global economy, Auerswald says, will spread wealth and well-being from the “advanced” nations to billions more people from China, India, and Brazil to emerging economies across the world.

The Bitcoin Is Dying. Whatever.

I have been following bitcoin since early days, and it seems as though it’s almost over. I blame it more on the thefts that have happened such as the $200,000 that went missing this week. But I could never conceive of how to properly take care of a file that’s worth that’s amount.

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There’s no denying the rise of Bitcoin has been as amusing as it has been interesting. A quasi-anonymous, internet-spawned currency that shoots up to a price of $32 is captivating. But the honeymoon is over and Bitcoin is falling. Fast. After tumbling to a price of $7, the Atlantic’s Nicholas Jackson points out the biggest problem with Bitcoin: it’s founded upon nothing. Absolutely nothing. The problem with Bitcoins is the same thing that people love about Bitcoins: They leave no trace.

It takes an incredible amount of computing power to create new Bitcoins with a PC (you can also, of course, just buy them on an exchange, which is what most people using them do). And a complicated algorithm keeps the total supply steady. Once these digital coins are created, they’re still just a handful of bits and bytes, a little piece of encrypted code. There is no fundamental value.

25% of all goods ever made were made between the year 2000 and 2010

This is terrifying. Who really thinks we can possibly keep up this pace, much less continue to grow it at this rate?

SOME people recite history from above, recording the grand deeds of great men. Others tell history from below, arguing that one person’s life is just as much a part of mankind’s story as another’s. If people do make history, as this democratic view suggests, then two people make twice as much history as one. Since there are almost 7 billion people alive today, it follows that they are making seven times as much history as the 1 billion alive in 1811. The chart below shows a population-weighted history of the past two millennia. By this reckoning, over 28% of all the history made since the birth of Christ was made in the 20th century. Measured in years lived, the present century, which is only ten years old, is already “longer” than the whole of the 17th century. This century has made an even bigger contribution to economic history. Over 23% of all the goods and services made since 1AD were produced from 2001 to 2010, according to an updated version of Angus Maddison’s figures.

Blaming Capitalism for Corporatism

The term “capitalism” used to mean an economic system in which capital was privately owned and traded; owners of capital got to judge how best to use it, and could draw on the foresight and creative ideas of entrepreneurs and innovative thinkers. This system of individual freedom and individual responsibility gave little scope for government to influence economic decision-making: success meant profits; failure meant losses. Corporations could exist only as long as free individuals willingly purchased their goods – and would go out of business quickly otherwise.

Capitalism became a world-beater in the 1800’s, when it developed capabilities for endemic innovation. Societies that adopted the capitalist system gained unrivaled prosperity, enjoyed widespread job satisfaction, obtained productivity growth that was the marvel of the world and ended mass privation.

Now the capitalist system has been corrupted. The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement. This system, however, is not capitalism, but rather an economic order that harks back to Bismarck in the late nineteenth century and Mussolini in the twentieth: corporatism.

The American Permanent Fund: What If Corporations Couldn't Use Our Commons For Free?

Now, here’s an idea that makes sense.

A cushion of reliable income is a wonderful thing. It can help pay for basic necessities. It can be saved for rainy days or used to pursue happiness on sunny days. It can encourage people to take entrepreneurial risks, care for friends, or volunteer for community service.

Conversely, the absence of reliable income is a terrible thing. It heightens anxiety and fear. It diminishes our ability to cope with crises and transitions. It traps many families on the knife’s edge of poverty, and makes it harder for poor people to rise. There’s been much discussion of late about how to save America’s declining middle class. The answer politicians of both parties give is always the same: jobs, jobs, jobs. The parties differ on how the jobs will be created — Republicans say the market will do it if we cut taxes and regulation, Democrats say government can help by investing in infrastructure and education. Either way, it still comes down to jobs with decent wages and benefits.

It’s understandable that politicians say this: it was America’s experience in the past. In the years following World War II, we built a solid middle class on the foundation of high-paying, mostly unionized jobs in the manufacturing sector. But those days are history. Today, automation and computers have eliminated millions of jobs, and private-sector unions have been crushed. On top of that, in a globalized economy where capital can hire the cheapest labor anywhere, it’s no longer credible to believe that America’s middle class can prosper from labor income alone.

So why don’t we pay everyone some non-labor income — you know, the kind of money that flows disproportionally to the rich? I’m not talking about redistribution here, I’m talking about paying dividends to equity owners in good old capitalist fashion. Except that the equity owners in question aren’t owners of private wealth, they’re owners of common wealth. Which is to say, all of us.

One state — Alaska — already does this. The Alaska Permanent Fund uses revenue from state oil leases to invest in stocks, bonds and similar assets, and from those investments pays equal dividends to every resident. Since 1980, these dividends have ranged from $1,000 to $2,000 per year per person, including children (meaning that they’ve reached up to $8,000 per year for households of four). It’s therefore no accident that, compared to other states, Alaska has the third highest median income and the second highest income equality.

Robots will steal your job, but that's okay: How to Survive the Coming Economic Collapse

I’m not sure I believe the premise (at least not until the singularity), but the article raises some ideas that we should think about. There’s also a response to the article with the opposite premise here. I believe the truth is somewhere in between for now.

You are about to become obsolete. You think that you are special, unique, and that whatever it is that you are doing is impossible to replace. You are wrong.

As we speak, millions of algorithms created by computer scientists are frantically running on servers all over the world with one sole purpose: do whatever we used to do, but better. These algorithms are intelligent computer programs, permeating the substrate of our society. They make financial decisions, they predict the weather, they suggest which countries will wage war next.

Soon, there will be little left for us to do: machines will take over. Does that sound like a futuristic fantasy? Maybe so. This argument is proposed by a growing, yet still fringe, community of thinkers, scientists and academics, who see the advancement of technology as a disruptive force which will soon transform our entire socio-economic system, forever.

According to them, the displacement of labour by machines and computer intelligence will increase dramatically over the next decades. Such changes will be so drastic and quick that the market will not be able to abide in creating new opportunities for workers who lost their job, making unemployment not just part of a cycle, but structural in nature and chronically irreversible. It will be the end of work as we now it.

The Myth of Class Mobility in the USA

When Americans express indifference about the problem of unequal incomes, it’s usually because they see the United States as a land of boundless opportunity. Sure, you’ll hear it said, our country has pretty big income disparities compared with Western Europe. And sure, those disparities have been widening in recent decades. But stark economic inequality is the price we pay for living in a dynamic economy with avenues to advancement that the class-bound Old World can only dream about. We may have less equality of economic outcomes, but we have a lot more equality of economic opportunity.

The problem is, this isn’t true. Most of Western Europe today is both more equal in incomes and more economically mobile than the United States. And it isn’t just Western Europe. Countries as varied as Japan, New Zealand, Singapore, and Pakistan all have higher degrees of income mobility than we do. A nation that prides itself on its lack of class rigidity has, in short, become significantly more economically rigid than many other developed countries. How did our perception of ourselves end up so far out of sync with reality?

Find out how here