A Stone's Throw Across the Pond

When passing the buck becomes the most profitable strategy in a marketplace, the entire market turns into an unproductive pyramid scheme. One reason is our glut of lazy and fearful politicians.
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Missed you all. Was deblogged for a spell by deadlines and my first ever kidney stone. (Delightful! Me and Karl Rove in sync at last.)

Found out this morning that The Prospect and Foreign Policy magazines have placed me in their list of the world’s top 100 public intellectuals. (You can vote for your favorites here: http://www.foreignpolicy.com/story/cms.php?story_id=3249)

My blog entry today will reveal the hidden connection between kidney stones and bankrupt airlines as a means of exploring how economics has been corrupted by Moore’s Law.

Kidney stones hurt rather more than would seem to be needed to make a point. The scientist in me wonders what evolution was thinking on this one. If there was an Intelligent Designer, shame on it.

So one goes to the emergency room. An American ER is one of the few places where you can meet every kind of American in one setting. I shared an evaluation room with a young woman suffering endless troubles related to her multi-year course of Methadone. The free clinic she had access to lacked expertise to deal with her case. We talked about her little girl. The nurses took ten minutes to find a viable vein in her for an IV.

The improper use of ERs is a staple trope in the health care reform debates. The uninsured use ERs not as a last resort, but as an only resort for care. This is a dumb setup, because health care costs are in general lower if problems are caught earlier. And ERs would handle genuine emergency cases better without the overhead.

Now to the airlines. I am writing this on a United Airlines flight over the Atlantic. The flight is tense. We had a mechanical delay and United has been having trouble re-routing customers who will miss connections, apparently because it is now understaffed. The major airlines of the richest country in history tend to be bankrupt, and somehow or other that is considered normal.

American corporations are increasingly functioning like fashion models. Youth matters most.

The trend of old companies in trouble and tulip crazes over brand new ones persists, even in this post dot com era. The reason is not merely the “Creative Chaos” of the marketplace. A creativity gap between the best and worst Airlines exists, but not to an existential degree. Southwest and JetBlue ARE innovative, but only marginally more so than their elder brothers.

The main problem for old companies is that if you’ve had a workforce for a long time, the health care and pension bills pile up. Much to my amazement I have a sideline as a consultant to industry, because I’m thought of as an “Out of the box” technical guy. A benefit to me of this unlikely gig is that I have had opportunities to talk to top executives of businesses such as airlines and hear their side of the story.

From them (and other classic big American concerns like the Detroit car companies) I always hear complaints about a walloping big “Tax-like expense” they have to pay for health care and pensions, a tax that foreign competitors are excused from. It’s as if we have an anti-protectionist trade policy. That’s no excuse for the Hummer; Detroit still has enough freedom of movement to make its own mistakes. But companies facing the Tax that dare not speak its name have a harder time thinking in the long term. Toyota would probably not have been able to fund the development of the Prius if it faced the Tax at home in Japan.

Is this what an America in decline will look like? When Google has been around long enough to have a middle aged staff instead of a gorgeous crowd of healthy young people, will investors dump it for a new Googalike that can hire kids again to get out from under health care and pension costs? Of course the early Google employees made tons of money from stock, and can provide their own pensions, but most employees by then will find themselves in the big base of the pyramid, just like workers at Ford or United today.

Bankruptcy (or massive layoffs) function as the irrational, wasteful ER rooms for corporations with large old workforces. Preventative care would work better.

Why is America doing this to itself? When passing the buck becomes the most profitable strategy in a marketplace, the entire market turns into an unproductive pyramid scheme.

One reason is our glut of lazy and fearful politicians. It’s always easier to pass the buck. But there is another reason, which is the religious appeal of neo-con economics.

Adam Smith’s original Invisible Hand was mostly said to be an expert allocator. In the early twentieth century a prevailing ideological controversy was whether Lenin or the Hand was better at telling a factory what to make. It is clear that the Hand won that contest.

The Hand gained new powers as it was romanticized by Ayn Rand and those who grew up reading her sexy accounts of what that agile appendage could do. The Hand now hefted freedom and creativity.

By the late twentieth century, the Hand became quicker than the eye. The Hand became a source of infinite innovation and wealth. The more trust fed to the Hand, by lowering taxes, for instance, the more wealth it would fling back, without limit.

There is a big difference between a powerful Hand and an infinitely powerful Hand. What the elder Bush called “Voodoo Economics” has mostly failed, and yet faith in the Hand cannot be shaken.

So, we come to today’s hypothesis. Electronic chips get exponentially better as described by Moore’s Law. Does that mean everything humans do will also get exponentially better? That would have to be true in order for ANY economic design to work as well as the Hand is expected to work by true believers. They ask us to let go and not impose cautionary checks on the free market, for it will succeed faster than our problems can multiply, if we only give it a chance.

Timing is everything, alas. I’m a believer in technology. I believe that technological progress has provided a necessary basis for moral progress in history by creating enough wiggle room for people to make moral choices.

The problem is that most technological progress is not smooth. There are usually unpredictable timing gaps between key innovations, and nasty delays in bringing benefits to large numbers of people because of legacy investments. In the computer world, chips get better, but software remains unreliable; or in the cases where software gets more reliable, it gets less innovative. Overall, technologies are more like software than hardware. We see progress in energy technologies, for instance, but not at guaranteed spectacular rates that will overrun our problems even if we refuse to think about conservation.

If Moore’s Law had never appeared, the Hand would have perhaps kept its Randian powers, but would probably not have assumed Voodoo status. Moore’s Law seduced some of our key economists.

How else could anyone believe that any existing economic idea is perfect? It seems obvious that economics is a young science that hasn’t been able to collect enough data as yet. A prominent political scientist told me recently that the only solid hypothesis in his field has been that democracies don’t go to war, but it hasn’t held up lately. Why can’t economists be as honest about how little they know?

Moore’s Law is the exception, not the rule. If we bet on the idea that Moore’s Law-like improvements can appear in everything we do, we will lose the bet, because our problems will multiply too fast for “Creative Chaos” to save us. Evolution created pain to keep us from doing stupid things. Pain sees into the future and tells us what it sees. A bit too forcefully for my tastes. The Hand has poor future vision. It leads us blindly into complacency.

The overly long reach of Moore’s Law is the Hand’s secret source of support.

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