Wall Street
WETA is showing Wall Street tonight. I’ve always wanted to watch it. More so now that the real Wall Street is getting into trouble.
Small Is Beautiful
When I was in India, I bought a copy of E.F. Schumacher’s “Small Is Beautiful”. It’s a book that relates well with the Peak Oil school. I’ve read some criticism of Schumacher somewhere along the way, but I don’t expect every author I like to be 100% right, all the time. Do you?
Let’s just say for the sake of argument that we are headed into an energy scarce future. Survival in that future will not be easy - not just because there will not be enough easy wealth to go around (is there enough now?), but because not enough people have the skills they need to survive it.
Say what you want about Malthus, but I think he is going to be our guiding star once more, should we actually live long enough to see it. This many people extracting what they need to survive is not going to be viable. If we are successful, it’ll be hell on the planet, and if we fail… well, that’s a bit dark for this discussion.
I’ve mentioned price as a negative feedback mechanism before, right? It’s no different from the electrical feedback that stabilizes an amplifier - at the cost of reduced output. Did you want stability or maximal output? That’s a matter of taste, I guess. Like strapping a rocket on your car to go faster, but then, always in danger of being blown to bits.
High prices are a signal. They say: “Use Less”. If prices are kept artificially low, then people do not use less. It’s business as usual.
My feeling about “Small Is Beautiful” - and I think it deserves to have me defend it - is that the lesson applies at all scales. Big isn’t necessarily bad - size should be sensible relative to the goal. We see it now in space exploration: Small companies are getting into the launch business. We have NASA precisely because we needed an escape valve for all our excess wealth. In many ways it was a good investment, but I wonder at the cost of it all. How dearly did we purchase the benefits of the space age? Did we perhaps lose opportunities to do something better with that money? Things that we simply failed to imagine?
Maybe it’s just human nature to want to gamble with the whole wad - take stupendous amounts of surplus (even when the surplus is a temporary illusion and the next disaster is on its way, unbeknownst to us) and blow it on that one big spectacle. This may be why we also developed a brain. Maybe human nature was leading us astray so often that only the smart survived - those people who could prudently circumvent their human nature when it was most advantageous.
There is this presumption that solving the problems of each little individual is not worthy of our attention. Especially when we can have something flashy that no one person could have paid for. Credit and Banking are certainly necessary - I would never claim that there is nothing big worth doing - but, bigness for its own sake is misguided. The larger the goal, the more we need to be in agreement about whether it is worth pursuing. But, this doesn’t stop the scoundrels, who pervert the real good Capitalism does in creating wealth, satisfying needs, and improving the lives of all.
Who decides what is worth doing? And, for how much? Once again, it’s the price. If you create the illusion that gasoline is cheap, then people will drive like there is no tomorrow. If you structure a mortgage so that a poor guy with a family thinks his payments will always be that low, he will buy a house he cannot afford, then be unable to interest anyone in buying it at half the price later. And, if we allow Wall Street players to create bizarre investment vehicles where nobody can gauge the real risk - because it makes rich people so happy, chances are those things weren’t priced correctly.
Wall Street is a hell of a lot more complicated some 20+ years after the fictional Gordon Gecko, but I know GG is still the guiding light.
Henry Ford
I use Henry Ford as my code word for a particular factory scenario. Whenever I tell people that I can’t unravel this issue, they tend to treat me like I’m an idiot. I, on the other hand (and I accept that I might just be missing something, in an intellectually obstinate fashion…) think that they are all just afraid to question the sources of received wisdom.
Henry Ford thought he could sell more cars if he paid his workers enough that they could also buy one. And, apparently it worked.
Every time I look, I see the factory, taking land, labor and capitol to transform some amount of material into some number of finished automobiles. You have fixed costs of setting up the factory (buy the land, build the shed, take delivery on the equipment, and pay the industrial designers), then you have variable costs to transform inputs to outputs (rubber, wood, and metal as the materials; electricity to run the machines; paychecks for the workers) What comes out is more valuable that what goes in, otherwise there are no profits. Economies of scale allow you to produce enough units to amortize the fixed costs as a small fraction of the variable costs. With their paychecks, the workers can afford to buy a car that they just participated in manufacturing. But all the workers together cannot buy all the cars - it takes them some time to earn enough for one, and during that time each worker probably contributes the equivalent effort necessary to build hundreds (hard to gauge with specialization, but it’s in there). The cars bought by workers are not going to be much more than 1% of the total. The other 99% are bought by people who are not employees. So paying your workers enough to be able to afford one of your cars is a bit of a red herring, if you ask me.
Going back to price… I think that profit may only be possible in cases where an input is undervalued. And, can you see now why the idea of paying the workers more sets of an alarm bell for me? If workers are so undervalued that you can pay them more and still profit, then what other input is being undervalued? The factory is “getting away with murder” - some externality that subsidizes the cost.
One of the things you notice in Open Software projects is that people will contribute effort without pay. They are being ‘paid’ in other less tangible ways. This translates to other workforces… Any time you can inspire people to take part of the full monetary value of what they do as something non-monetary, you’ve got a shot at success: Any worker can be proud of what they help accomplish - all the more so if it’s a tangible output. And, the bigger the better: “Hey, I put five rivets in that jumbo jet! - It wouldn’t fly without me. I was integral to the success of this great thing.”
Posted by Evan Bittner Sun, 05 Oct 2008 01:58:00 GMT
