Evonomics – Fixes for economics

Economics Can Explain the Real World with Two Fixes

Why rationality should be based on relative payoffs

This article is good as far as it goes, and Rob, Swami and Derryl all raise valid issues, which in my understanding can most powerfully be conceptualised in the following framework.

Two major aspects to the framework – one aspect is the drivers of human choice, the other around what markets measure.

On the choice aspect.
All human beings are complex entities, capable of many different modes of interaction that are highly context dependent.
One set of responses can be thought of in the broadest sense, as considering a spectrum of responses between short term selfishness and long term cooperation. In any given instant, how one responds on that spectrum seems to be a probability function, that has many sets of contributing factors including (but not limited to):
how likely is it that there is enough of this thing for everyone?
how essential is this thing to my survival (short and long term)?
how likely is this thing to contribute to my enjoyment?
if I cheat, how likely am I to get caught, and what are the consequences?
what are the likely consequences of my actions now on my long term social success?
how much time and energy is it likely to cost me to get some substitute for this thing?

For most people, there is a large degree or randomness in even the seemingly simplest of choices. Few people maintain the sort of discipline that leads to the sort of consistency that results in thousands of successive choices without variation.

Looking at what markets measure.
Markets measure supply and demand. If supply exceeds demand, consistently, then price is zero.
When most things were genuinely in short supply, that was a system of organisation and information transfer that had some real utility. As Hayek and others argued, the price signal led to successful cooperation – to a degree.
A major problem with markets has always been that there exists a strong incentive to manipulate information about both supply and demand, to influence price (and thence profit).

We are now in an age of automation, where we can duplicate and transmit information at a cost that is so low, that it is essentially free (some fraction of a cent for a month’s reading). The production of many physical goods is reaching the same sorts of levels of automation and production cost.

This is where markets start to break down, and fail to deliver utility to the majority.
Markets require scarcity to function.
People require abundance to function.
For a large and exponentially increasing set of goods and services we now have the technology to deliver abundance universally, but our system of markets cannot do that, as anything with universal abundance has zero price by definition (like air – arguably the most important thing to any human, yet of no market value).
We could make all the essentials of life (air, water, food, shelter, education, healthcare, energy, communication, transportation, information) universally abundant (world wide), but no market system will ever do such a thing, in and of its own internal incentive structure.

So here we are.
We live in a market based world.
We have the clear logical reality that markets have some major survival issues.

We face a choice.

To me, there is a way out, that does seem to work.
Exponentially increasing technology does seem to offer the prospect of exponentially increasing abundance, and decreasing risk into the future.
Classically uncertainty increases into the future, as unknowns overwhelm the known, leaving us with a discount rate on future benefits.
It does seem possible now to conceptualise reversing that.
It now seems likely that technology will be able to increase security into the far future, faster than uncertainty degrades it, which leads to a situation where cooperation is always a far higher pay-off than competition. Indefinite personal life extension, and increasing freedom, does seem to be a practical possibility.

That is a clear possibility to me – just not so clear to many others as yet.

About Ted Howard NZ

Seems like I might be a cancer survivor. Thinking about the systemic incentives within the world we find ourselves in, and how we might adjust them to provide an environment that supports everyone (no exceptions) - see www.tedhowardnz.com/money
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