Tag Archives: economics

Philosophy

Complex Economics – a political metaphor for the math-inclined

Once upon a time, in a land not too different from our own, there were two political parties. For the sake of distinction, we might call them Posicans and Negicrats. In principle, both parties wanted the same thing for their people: freedom, prosperity, education, health, safety, and so on.

complex economics

Imagine: complex economics

Unfortunately, the politicians were divided on one particular point, which caused them to support contradictory solutions for their economic problems: The Posicans, it turns out, insisted the square root of one dollar (?$1.00) is one dollar ($1.00). Meanwhile, the Negicrats believed the square root of one dollar (?$1.00) is actually negative one dollar (-$1.00). Both sides could make reasonable arguments for their assertion, suggesting that their opponents were wrong. Moreover, neither side could account for the square root of negative one dollar (?-$1.00) and accused anyone who considered such a complex thing of imaginary thinking.

Ultimately, the people were completely divided and their land was cast into a long and bitter conflict. Neither side was willing to believe the other could be correct and imagined their foes were solely interested in personal gain. As the debate continued over many years, it became obvious that members of the opposing viewpoint were corrupt.

It was not apparent to anyone that both sides of the ideological divide were correct, just as much as they were both wrong. Both Posican and Negicrat economics provided only simple and incomplete solutions to a more complex problem. When a theory of complex economics, and the tools to support it, was ultimately proposed, it consistently accounted for all of the Posican ideals as well as all of the Negicrat ideals at the same time.

However, locked into their narrow view that the truth could be only one way or the other, neither Posicans nor Negicrats could believe their economic model was a restrictive one. They would not consider that their society might be able to have it both ways where everyone could prosper.

Ultimately, unable to challenge their basic paradigm, the conflict continued, the world burned, and all was lost.

Civilitics: a complex solution to simple economics; not so easy to understand, but worth the effort.

Examples, Implications, Philosophy

Changing the GDP calculation?

According to an NPR story (Lady Gaga Writing A New Song Is Like A Factory Investing In A New Machine), the United States government is about to revamp the way gross domestic product (GDP) is calculated because economists are realizing that intangible investments contribute to the GDP and should be included in its overall calculation. In the Lady Gaga example, “the value of the time she spent working on new songs; working in the studio” is now worthy of being counted in the GDP. Investments in filming movies will also receive GDP status, as will investments in research and development.

Credit: MarkyBon

Credit: MarkyBon

So let’s get this straight: song-writing is a value-added activity and represents a contribution to the domestic product. While it may seem like a smoke-and-mirrors tactic to artificially inflate the GDP in order to make the economy look better (which could easily be the real motivation behind this change), the new calculation is a step in the right direction. It is an economic way to approximate heretofore unrecorded contributions to the public wealth. As such, it is a tiny bit closer to the implicit civilitic understanding that every value-added contribution is inherently beneficial to society and counts toward the wealth of a nation.

Since economics and civilitics are based in totally different principles, we must have a common measurement concept if we are going to compare them in a meaningful way. It would be just as inappropriate to discuss the overall ivi of an economic system as it would be to consider the GDP of a civilitic system. But let’s assume for a moment that GDP is a measure of the benefit to society (by the expenditure of effort and money) over the period of a year. Technically, this is not the case, since automobile accidents and disasters contribute to the GDP. But if we consider just the positive aspects of GDP, then the GDP might actually be an economic allegory for ivi. A national ivi (should we call it a GDI – gross domestic ivi?) would be a time-average positive contribution by a nation’s people, something vaguely similar to the GDP. Of course, ivi is a running average and is not bounded by any sort of annual calculation, but we could certainly measure it only once a year if we wanted.

An activity that is a freely-given contribution to the world and society is a civilitic activity. So song-writing – at least by reputable artists – is certainly an ivi-generating activity and the addition of song-writing to the GDP brings that calculation more parallel with an ivi calculation. The same is true for film-making or research and development. But what about other ivi activities that still will not be included in the GDP?

So far, the breadth of activities included by economists – even with the new rules – is grossly incomplete. For example, the GDP does not include domestic activity such as caring for children, cleaning house, or doing yardwork. These activities are also investments in the value of a nation and the well-being of its people. Child care only increases the GDP when it is being done for pay, usually by someone who is not the child’s parent, but doesn’t it still contribute to the wealth of a nation when it is being performed by the child’s parent? Is house-cleaning only important when it is done by a maid service? Is mowing a yard only important when compensation is paid to a landscaping service?

Economists need to explain where and why they draw a line between investing in a new song and investing in other value-improving aspects of our society. Furthermore, since they have now decided to add some of these activities into the GDP calculation, how are we to measure them or assign a GDP value? How much is GDP is that new Lady Gaga song worth while it’s being written and how does that compare with a song being written by my friend Peggy Lang?

In contrast, civilitics handles these questions intrinsically by allowing society to decide the value of all activities. If you mow a lawn, write a song, take care of children, or research a new technology, civilitics calls upon society to assign an ivi value. How much real value is added to society when a board chairperson spends the morning preparing for a shareholder meeting? How much value is added when a mother is available to help guide her child through a moral crisis? Ultimately, economics can only attempt to model calculations which are simple and natural for civilitics.

Examples, Founder's Journal, Mechanics

Civilitics and the music industry

This post is part of a larger discussion that involves intellectual property of every form, ranging from artwork to patents. But here, specifically, we will confine the discussion to music.

In one of her TEDx talks, Jodi Beggs discussed several ways in which musicians survive economically. She did not spend much time on the conventional recording industry, but discussed alternative funding sources such as “pay what you want” and crowdfunding. She also spoke about freely-available music downloads and the presumed threat of digital music downloading and sharing.

Of course the conventional funding method for artists is to sign with a recording company which then handles overhead costs of producing, marketing, and distributing the artist’s music. This relationship gives artists the chance to focus on their music instead of handling the day-to-day job of running a business. Typically, artists must trade some of their profits and much of their independence for the business services they receive from recording companies. In some cases, artists are bound by exclusivity clauses that prevent them from performing outside those contractual relationships.

Some musicians have explored “pay what you want” funding methods as a way to create a less adversarial and  more friendly relationship with their customers. Other artists have turned to crowdfunding, such as kickstarter, to support their profession. This last group is beginning to look more civilitic, although most crowd funding campaigns remain based on some kind of exchange system to reward support. Even so, the bulk of the gifting is to the artist, presumably as a reward for the good works they have already created, even though it is unlikely those works were themselves freely given.

In addressing the question of digital music downloading and sharing, Jodi said,

…the weakened copyright protection, because of digital downloading, has not helped the producers of music, but it has actually helped society overall because it has resulted in a transfer of surplus economic value from producers to consumers and we have new consumers entering the market that either wouldn’t or couldn’t pay the old prices for music. Not something the industry likes to hear, but something that’s based on very valid scientific principles.

So, contrary to the tenets of Adam Smith, Jodi seems to be encouraging an economic philosophy that elevates “helping society overall” above the economic benefit to the music producers themselves.

In order to make the transition to a more civilitic recording industry, we would need to combine the last two points of Jodi’s discussion: crowdfunding and digital downloading. This is what it would look like:

  • Musicians would do the work of performing and recording, presumably because it is what they love to do, and because it contributes value to the world. As part of that effort, the music would be made freely available for download and/or distribution to the masses. After all, music that is not heard does not enrich the world.
  • The reciprocal side of the equation is that people who hear and love the music contribute in kind, whether back to the musician or in some other positive way. They might choose to make a donation of some kind back to the musician, or they might just “pay it forward” to someone else in faith that it will eventually reach back to the musician. In any event, the musician receives value back from the world in appreciation for their own form of contribution.
  • Overall, the musician provides music without any explicit promise of reward. Conversely, the world supports the musician without any explicit promise of additional music. This arrangement is fully ivi on both sides: things freely given without expectation of direct reciprocity. Of course it follows that better musicians will likely receive higher levels of appreciation. At the same time, it follows that greater appreciation is more likely to free up musicians to perform more works.

In My Garden by Peggy Lang

In My Garden by Peggy Lang

A good friend of mine is a singer/songwriter. Because of her, I have always considered how civilitics would apply to musicians. As with any profession, musicians have overhead tasks that must be done in order to pursue their ultimate goal of performing: there is time spent practicing, tuning, writing, coordinating, planning, and so on. In the economic world, most of those overhead activities do not generate revenue, so they must be covered by money earned from other activities such as performances and selling recordings. However, in a civilitic system, every activity that contributes to value in the world (as overhead activities do), holds the possibility for earning appreciation (ivi) from the community at large.

My friend, Peggy Lang, once had the opportunity to sign with a major recording company but she remained independent and never achieved the comparative musical success that some of her counterparts managed. I think she would tell you she managed to keep her soul in the bargain. It has made the pursuit of her music more challenging and it has forced her to support herself in other ways. Not surprisingly, exchange economics does not support those who challenge the established system.

After speaking with Peggy, she is making her album, In My Garden, available for free download as a civilitic gesture. Producing a run of CDs, marketing, and distributing them, is a large expense for a sole musician, so Peggy is making the download of this album available and is adding value to the world in doing so. She is not requesting any payment in exchange, though I am sure she would certainly put any donations to a good use. Mostly, in making this gift to the world, there is a hope that this will generate another civilitic gift forward. So if you download and enjoy the music, the most appropriate response is to contribute something of your own toward making the world a better place.

Examples, Founder's Journal

From local food to civilitics

It would be difficult to explain my life-long journey to civilitics in a singe blog posting. This portion of the story, however, started in about 2003 when I began working with an intrepid group of people who wanted to have a local organic grocery store in rural central Nebraska. At that time, retail organic foods were mostly available only in areas around the larger metropolitan areas of Lincoln and Omaha, about a hundred miles away.

After several meetings of the steering committee of the First Rural Organic Grocery Store (FROGS), we could not settle on a good and affordable location and came to the conclusion that the time for opening a store was not right. Some years later, FROGS did become a reality, but that is another story.

Shortly after FROGS failed to materialize, Bob Waldrop of the Oklahoma Food Cooperative came to speak at the Nebraska Sustainable Agriculture Society (NSAS) annual conference about the local food cooperative he had founded in Oklahoma. That cooperative provided an online service that allowed small farmers to sell organic and naturally-grown foods directly to consumers through a website. After the meeting, I began working with a slightly different group of people to incorporate the Nebraska Food Cooperative in a likeness of the Oklahoma model.

About two years later, being a programmer, I found myself taking over much of the software development for those two cooperatives and another two that had formed in Idaho and Texas. Eventually, I became the lead software developer on the project and was directly supporting local food cooperatives around the world who were using the Local Food Co-op software.

That probably sounds like a pretty good gig, but there was one major flaw: Local food cooperatives tend to be shoe-string operations and most of them have negligible funds to pay for software development and maintenance. In a free-market economy, they would have been a casualty of the marketplace and gone bankrupt. Fortunately, one or two cooperatives were able to obtain grant funding to pay for software development, and that kept me with enough work to help my wife put food on the table. Nevertheless, I was happy to be working in a field which I could ethically support, rather than crafting ways to deceive search engines into promoting e-commerce sites that don’t actually serve the public benefit. Instead, I was helping small family farms survive and I was helping to get healthy food for people who wanted it. What could be better than that?

amount due: zero

amount due: zero

Well, “better” might have been making bucket-loads of money while doing that same conscientious work and building a thriving dot-com software company in the process. But it didn’t quite work out that way. Instead, I worked numerous of hours, many of them for little or nothing. By that time, I had been working on civilitics for a number of years and somewhere along the way I decided it was time to put my money where my mouth was. So in the summer of 2012, I quit participating in the exchange economy and provided all of my services free of charge, without negotiating for any compensation. If I had been running a thriving software company, the transition would have been more challenging, but it is not so difficult to give up nearly nothing.

Indirectly, this points out a couple of implicit advantages of civilitics over exchange economics:

  • In civilitics, market pressures do not affect the failure or success of an industry. As I mentioned earlier, in a market economy, the local food cooperatives might have failed for lack of ability to fund their software development. In this case, some economists would argue they should have failed. In civilitics, it is people who assess what is important or valuable and what is not.
  • In my case, because I support multiple small organizations in a variety of ways that would be difficult to quantify, civilitics simplifies my process and allows me to be more efficient. Sometimes I provide phone help; sometimes I debug a process error; sometimes I add a new feature or provide system upgrades, or backups. Sometimes I spend two hours on the phone giving support to organizations I have never even heard of. Surely these sorts of things are handled by other software consultants and billed accordingly. But in my situation, I only need to do the work. Invoicing, new client contracts, and similar overhead activities are not a part of my routine. I work, I create value, and I keep track of what I have done. It’s as simple as that.

At this time, the most significant drawback is that no civilitic framework yet exists, so there is no clear way for anyone to survive through civilitics without an alternative form of support (my wife, in my case). This means contributions are mostly just cast into a sort of social vacuum until there is a way to connect the reward side of the system. So the next phase is to create a framework that enables civilitic activity to take place and closes the cycle of benefit. In part, that is what the International Civilitic Institute is about: creating a home for that conversation and initiating the next steps.

Philosophy

Exchange economics and civilitics

Economic paradigm: If I patronize your coffee shop, then you give me something (maybe coffee) and I give you something in return (probably money). In this case, we are both motivated to provide something the other person needs while getting the best possible bargain for ourselves. That’s the basic principle behind exchange economics.

When we extend this simple transaction to a global system, we should also consider long supply chains. So when I buy a cup of coffee at the local shop, I am not buying it from the grower. Instead I buy it from the shop, who bought from the distributor, who bought from the roaster, who bought from the importer, who bought from the shipper, who bought from the export collector, who bought from the grower. Of course something (generally money) was traded at every step along that supply chain.

In a minimal supply chain, limited to just me and a grower, I would know quite a bit more about the product’s history. For example, if I buy a heritage turkey directly from my neighbor at Wattermann Family Farm, I know that the animals are raised and processed humanely and with integrity, I know how the farmer cares for the land, and I know that I can ethically support his efforts. Because of my direct involvement in the one-to-one supply chain, I can vote with my dollar in an knowledgeable way.

But when the supply chain is much longer than that, and certainly before it reaches seven participants like in the coffee example, my vote is no longer educated and I am restricted to voting with minimal information, often based on little more than the price of the product.

To understand the price of a product, we need to realize that every step along the supply chain is necessarily motivated by profit. This is not an indictment of the profit motive; it is just a recognition of how the exchange economic system works: If my coffee purchase is governed largely by price and my vote goes to the lower priced product, then the higher-priced competition will become endangered or extinct in the marketplace. The end result is that the businesses that survive are the ones that are effective at driving prices down. This is not through malice, nor is it anyone’s fault; it is just a natural behavior of the system.

Planting coffee

Planting coffee Credit: Catherine Nomura

In a similar way, the coffee farmer at the other end of the supply chain will be pressured to lower prices and may be forced to cut corners, hire workers at poverty wages, or employ harmful land practices, as a way to minimize costs and remain in business.

There are a number of ways people try to combat these problems: trade laws, fair trade, ethical buying, labor laws, consumer education, environmental regulations, etc. All of which are good things, but we should realize that many people will never hear about those ethic-based campaigns or will not care, and there is a strong incentive for every part of that supply chain to push back against regulations. Ultimately such efforts have limited efficacy to truly improve the world.

Civilitic paradigm: In a civilitic “marketplace” (technically we should not call it a marketplace) if I were to patronize your coffee shop, the only coffee available for me would be free. You would receive nothing in exchange from me, but you would be rewarded by society-at-large for being someone who gives away free coffee. As such, your primary motivation is to please society and your secondary motivation is to please me, your customer.

With civilitics, we would probably retain all of the same supply chains for coffee so that everything looks very much like it does in exchange economics except the price/exchange system. What we have done is remove the one-to-one exchange that happens at every link of the chain and replaced it with a sort of social oversight. Just as the coffee shop owner is not rewarded (paid) by the customer, so also the coffee grower is not rewarded (paid) by the export collector. Instead, every member of the supply chain is rewarded independently by society for their contribution to the overall process. If society doesn’t like the process, then the supply chain will be encouraged to find something society does like.

Coffee plantation. Photo by Gillian

Coffee plantation. Credit: Gillian

Because society is the agency responsible for assigning value to the activities of participants in the example coffee supply chain, there is cost pressure to be applied between the links in the supply chain. In fact, there is a great deal of incentive for cooperation and collaboration. The coffee-grower will want to be rewarded (by society) in the highest possible way and will be inclined to do what society values: treating the crops with care, tending to the land, maintaining good social relationships with workers, and generally being a good and productive steward. There will be little incentive for cutting corners and it will be much as if the customer were dealing directly with the farmer, only better.

Similar reasoning applies to the export collector, shipper, importer, roaster, distributor, and retailer, where there would be incentives to be productive, responsible, and act in the best interest of society and the world. Every place along the supply chain, the incentive changes from profitability (exchange economics) to playing a constructive role in the process (civilitics).

The incentive is to contribute real value (versus money value) because the rewards of society are based upon actual contribution rather than upon some idea about the money saved, labor exploited, or products bought below market price. In short: exchange economics forces a “race to the bottom” (the bottom line) while civilitics encourages a “race to the top” (the moral high ground).

We can’t keep up this race to the bottom while trying desperately to keep ourselves from actually hitting the bottom. It is good that there are regulations and social campaigns to block the downward progress, and those things do help, but the problems we are facing are intrinsic to the system and they will not simply go away. The system of exchange economics created this world and no variation, including green economics, is likely to solve the problems.

We can’t solve problems by using the same kind of thinking we used when we created them. — Albert Einstein

Think differently