Oct 232011

An interesting pattern emerges, when we line up market structure from economics and finance with theories of developmental psychology and pedagogy, as in the table below. For more details than I describe here, click on the links at the head of each column to see the Wikipedia articles on these topics.

Admittedly, the alignment undoubtedly is not as precise as implied below, but the exercise is fruitful, at least in broad brushstrokes. The point here is to seek insights that might lead to testable hypotheses, rather than to present established conclusions concerning a detailed theory of society.

Brief Introduction of Each Column

Starting at the bottom, Maslow argued that the primary motive of all individuals is survival; where this is not assured, nothing else will occupy an individual’s mind. Once survival is assured, the individual will focus on safety. Only after survival and safety are fulfilled, can individuals focus on social needs. When survival, safety, and social needs are fulfilled, the individual can focus on self-esteem, which is a fundamental topic in itself, especially among those who grow up in dangerous or abusive environments. Finally, once all of these needs have been fulfilled, the individual can focus on self-actualization — ‘realizing one’s full potential’ or ‘going beyond oneself’ — which might manifest itself in the creation of works of art, volunteering, or any other activity that one feels compelled to do for its own sake

Kohlberg‘s focus was on morality. He argued that how an individual decides ‘right’ from ‘wrong’ starts at a primitive level and becomes more sophisticated as one matures. At the lowest level, the test is pain vs pleasure; if it hurts, it is wrong, and if it feels good, it is good. In time, this develops into egoism, in which the orientation is toward oneself to the exclusion of all others, often associated with young toddlers and their tantrums. As one develops — and corresponding to Maslow’s Social stage — one’s moral orientation becomes outward; first as ‘be nice’, and later as a law & order adherence to the rules. For a minority of the population, contradictions and other failings of the status quo lead to an moral orientation based on questioning authority and reconciling inconsistencies. Finally, some very few adopt a universal ethic, which manifests itself as a single principle that guides the individual’s sense of right and wrong. For some, this ethic might be non-aggression; for others, the superiority of one’s tribe; etc.

An individual can move up or down either hierarchy, but will tend to be grounded in a specific one at any particular time. Individuals generally can imagine the next developmental level up, but not beyond. Those operating at a very primitive level, for example, will be unable to distinguish a universal ethic from egoism. This, also, is not to say that a universal ethic will be viewed by others as ‘good’, as when one who has embraced non-aggression evaluates the morality of a tribalist who believes in the collective ‘superiority’ of his or her people.

Bloom‘s Taxonomy deals with pedagogy and the appropriate method of education. With very young children and those who are new to a subject, the first step is identification, which essentially is being able to point a thing when named. The next step is definition, which is when the learner is able to explain what something is without naming it. Next is application, which is using a tool, concept, or anything else in a prescribed fashion. Higher-order learning begins with analysis, which is breaking complex puzzles, concepts, or objects into simpler constituent units. There is some debate concerning the order of the last two steps: evaluation, which is judging a thing based on some standard, and synthesis, which is constructing something new from existing components, whether it is a structure, a work of art, story, etc.

Market structure is the relationship between the number of buyers and the number of sellers in a market. Here, we focus on the number of sellers and assume that the number of potential buyers is very large. The most restrictive market structure is the command economy, in which a central authority rations goods and services, and secondary trading is generally difficult if not forbidden outright. Next is monopoly, in which only one supplier exists. One of the hallmarks of monopoly markets is price discrimination which occurs when two buyers pay different prices for the same good or service; in any other market structure, buyers can shop among sellers and buy from the one with the lowest price. A market with a small number of sellers, each of whom represents a significant portion of the overall market is called an oligopoly. Oligopolies are distinguished by ‘interdependence’, in which a sale made by one oligopolist is a sale lost by each of the others; oligopolists often have very large advertising budgets. A market with imperfect competition has a large number of sellers — each of whom might have some amount of monopoly power based, most commonly, on geography — none of whom represents a significant fraction of the total market. Most of the sellers that each of us deals with in the real world are imperfect competitors, who might be able to price discriminate through coupons, early bird specials, happy hours, etc., but who do not have the market power of an electric, sewage, or water utility. A commodity market is one in which the good or service sold by one seller is economically identical to the others’. This includes things like wheat, gold, and financial assets that are sold on formal exchanges. At the furthest extreme are public goods*, which exist in such abundance that one’s consumption does not diminish anyone else’s ability to consume them, and one is unable to meter their consumption or stop others from consuming them. Common examples are breathable air at sea level, seawater, and anything else that one can consume in unlimited quantities for free.

Market Structure and Developmental Psychology
Self-Actualization Universal Ethic Synthesis Public Good
Self-Esteem “Question Authority” Evaluation Commodity
Social Law & Order Analysis Imperfect Competition
“Be Nice” Application Oligopoly
Safety Egoism Definition Monopoly
Survival Pain/Pleasure Identification Command

The Table Row-by-Row.

In general — and bearing in mind that the real world is much subtler than implied here — life in a command economy is brutish and mean. Individuals in such a society likely have little time for reflection on higher ideals, and instead focus their attention on survival and avoiding punishment.

In a society dominated by monopoly, the focus is on personal benefit to the exclusion of virtually all else. Corruption is a common feature in a society that has one provider for each category of goods and services, and innovation and entrepreneurship are essentially unknown — except, perhaps in the oligopolistic or imperfectly competitive underground economy — and daily life is highly bureaucratized.

A society dominated by imperfect competition — “a nation of shopkeepers” as Karl Marx sneeringly described 19th Century England — is organized along the principles of ‘getting along’, ‘not rocking the boat’, and ‘observing established customs’. Perhaps, regulations exist to ensure that the peace is kept. At a personal level, social needs are the primary focus, along with ‘knowing one’s place’. Marginal improvements in techniques are tolerated, so long as they are not disruptive.

A society dominated by commodification — ‘McCulture’, if you will — will be one in which individuals’ social needs are fulfilled in general, and the quest for self-esteem is the primary focus. Rules are broken, norms are evaluated, old ways are cast aside by each new generation. Seen from the outside, such a culture might look superficial, made of plastic, and chaotic, but it operates by its own internal logic of creative destruction and disruptive innovation.

Finally, a society dominated by public goods is a society in which individuals seek self-actualization through the synthesis of what has never existed before, based on some universal ethic. For those locked into the habits of thought of lower stages of development, a public goods society is indistinguishable from a command or monopoly society (i.e., ‘communism’). But, whereas command and monopoly societies suffer from chronic shortage, public goods societies have so must stuff that they just give it away.

The Way Ahead

The wealthy parts of the world today are dominated by commodification, self-esteem, and social change. However, a small but growing subculture of open source, free culture, and ubiquitous charity already has had an impact on modern life. The move is away from command and monopoly in the form of patent and copyright. Granted, those with a vested interest in the status quo will not go quietly, but go they will.

This is not a ‘good’ thing or a ‘bad’ thing, as all value is subjective. It simply is. Some will love the change, others will hate the change, and the great majority will just roll with the tide.

We are in the latter stages of an epochal transition from the capital/labor dichotomy to the knowledge/service dichotomy in an increasingly integrated global community, where borders are largely meaningless, anything that can be encoded as information — whether software, music, texts, videos, title, or even money — flows freely, and emerging institutions are supplanting traditional forms of social coordination.

Invest accordingly.

Prof. Evans

*Note: The term ‘public good’ should not be confused with ‘government-provided good’. If the ability of an individual to consume a good or service is reduced by others’ consumption, or if it is possible to restrict access, then it is a private good, regardless of whether it is provided by government or no direct fee is charged for it. Thus, ‘public schools’, ‘public beaches’, ‘public roads’, etc. are government-provided private goods.

Oct 182011

(Orig.: 01 Feb 2009; updated)

Some myths refuse to die. The Overpopulation™ Myth is one of the more pernicious, as it leads inevitably and inexorably to calls for what is the functional equivalent of genocide. And, that’s just bad for business.

Granted, Overpopulation™ advocates tend not to come right out and actually say it, but it is there, as it has been all along.

For example, according to The Sunday Times (1 Feb. 2009), “Jonathon Porritt, who chairs the [UK] government’s Sustainable Development Commission, says curbing population growth through contraception and abortion must be at the heart of policies to fight global warming.”

Never mind that life expectancies and incomes — worldwide — are higher today than they were a half-century ago. Back then, our parents told us to eat all of our vegetables, because children were starving in China and India, and South Korea and Japan were Third World countries. Today, we tell our children to earn graduate degrees, so that they do not lose their jobs to the Chinese and the Indians, and obesity (i.e., too much food) has become a major health hazard worldwide.

Never mind that women spontaneously bear fewer children as incomes rise, as shown in Figure 1 below. In many countries today — mostly in Europe and Northern Asia — the population is decreasing due in large measure to very low fertility rates.

Figure 1

Buried near the bottom of the Sunday Times article linked above is the real issue that the Overpopulation™ Myth was cooked up to obscure: “The fertility rate for women born outside Britain is estimated to be 2.5, compared with 1.7 for those born here [in the UK].” [emphasis added] The code phrase is “born outside Britain.” It is fairly obvious whom Mr. Porritt is referring to here; it isn’t the Poles, the French, or even the Irish.

After a half-century of the same discredited fear-mongering, it has become incontrovertible that the Overpopulation™ Myth is very thinly veiled racism. As unpleasant as race supremecists of all colors, religious radicals, and neo-fascists are, at least they have the conviction to come right out and say it. Overpopulation™ advocates exploit baby fur seals, the victims of political oppression, and obscure species as shields for their real agenda.

A bit of arithmetic is instructive here.

Today, the world population is approximately 7 billion humans. The population densities of Hong Kong and Singapore are approximately 6,500 individuals per square kilometer. These are wealthy, modern cities, proving that a lot of people can live well in a tight space. If all of the individual humans in the world were contained within an area that were a bit larger than 1 million square kilometers, that would result in a population density comparable to those of Hong Kong and Singapore, and it would leave the entire rest of the surface of the earth available for energy and food production, manufacturing, and waste processing.

Egypt (1 million sq. km.) or Bolivia (1.1 million sq. km.) would do. The US Southeast (Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, and Tennessee) would do. 1/2 of Argentina would do. 1/7th of Australia would do.

That would leave all of the Sahara Desert available for solar energy production, the unoccupied land in the Subtropical and Temperate Zones available for food production, and the uninhabitable bits for waste removal.

“Ah, HA!!!,” comes the Overpopulation™ activist’s predictable rejoinder, “How’re y’gonna feed ‘em all?!?”

Let us do the math. 7 billion individuals, each of whom consumes 2,500 calories per day (being a bit generous here), would require approximately 6.4×1015 calories per year.

Assuming that one were able to grow only one crop per year on a given piece of land, and depending on the staple in question, Table 1 shows the number of square kilometers (sq. km.) needed to grow enough of each crop listed to feed the world, assuming that only that particular crop were grown.

Table 1
crop calories
per sq. km.
sq. km. needed
to feed the world
potato 2,270 2.82
corn/maize 1,850 3.75
rice 1,825 3.78
wheat 741 9.37
soybean 690 10.07
Source: Foods & Nutrition Encyclopedia, Volume 1 by Audrey H. Ensminger

Basically, we could relocate everyone to Argentina, turn the USA into a giant farm, and have the rest of the Americas and all of the Eastern Hemisphere left over for energy production, manufacturing, and waste disposal.

Granted, the likelihood that this kind of reorganization would ever take place is nil. The point of the exercise is to show that advocating for political transparency, more efficient urbanization, and market reforms is less unsettling than calling for mass forced abortions among those “born outside Britain”. (If the abortions that Mr. Porritt, et al., call for were voluntary, the women would be getting them already, and there would be no need to advocate for them; ergo, it is a logical necessity that they must be involuntary.)

The calculations above show that the earth’s carrying capacity is more than sufficient to feed and house humanity, and Hans Rosling’s presentations show that individuals are making the right decisions on their own. Rather than perpetuate discredited Malthusian myths, one would do much better to approach those “born outside Britain” as potential friends and business partners than as outsiders who are unfit to decide for themselves whether or not they should be permitted by those ‘born inside Britain’ to raise families… in order to “fight global warming.”

Invest accordingly.

Prof. Evans

Update, February 2013: Someone else had a similar idea, and put together a very nice illustration:

Oct 082011

The Sapir-Whorf Hypothesis holds that language affects thought, in part because we tend to think in terms of the languages that we speak. Whether thought is constrained by language or merely influenced is a matter of some debate beyond the scope of this post.

The point here relates to Methodological Individualism, which is the theory or practice of ascribing all human action to individual action, rather than amorphous collectives like races, genders, nationalities, countries, companies, etc. In other words, one would look at the motives of the individuals within a major Wall Street bank for explanations of the causes of the 2007-2008 market meltdown, rather than at ‘Wall Street’, ‘Wall Street banks’, ‘the government’, ‘capitalism’, or whatever.

Employing Methodological Individualism leads one to ask, “If I want to communicate with X, what is his or her email address?” Try it.

“If I want to communicate with the CEO of Citibank, what is his or her email address?”

See? No big deal.

Now, try these:

“If I want to communicate with Wall Street, what is his or her email address?”

“If I want to communicate with Main Street, what is his or her email address?”

“If I want to communicate with blacks, what is their email address?”

“If I want to communicate with Latino voters, what is their email address?”

Silly, right?

Now, let’s apply the same principle to an essay that is making the rounds among the technorati. Neal Stephenson writes in “Innovation Starvation,” “My lifespan encompasses the era when the United States of America was capable of launching human beings into space.”

Sounds gloomy, bordering on nihilistic. If I want to communicate with the United States of America, what is its email address?

Unlike Mr. Stephenson’s, my lifespan encompasses the era when a seeming army of NASA employees — who were provided with a clear mandate and huge sums of money confiscated from working Americans through taxation — were capable of launching human beings into space. It now includes the era of the first commercial space flight companies in human history, all of which are based in the USA.

An interesting assignment would be to rewrite Mr. Stephenson’s essay from the perspective of Methodological Individualism, replacing all collectivistic references to ‘America’, ‘us’, etc. with identifiable individuals, even if those individuals are archetypes and not actual living personages.

Invest accordingly.

Prof. Evans