14May
Filed in Flow | Flow Economy
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In the previous post we laid the theoretical foundation for the Flow Economy, and explained how it would work in practice. The Flow Economy is a complete paradigm shift in economic theory:
…the flow economy systematically resolves the problems inherent in the capitalist system. Instead of appealing to people’s lowest motives - cynicism, nihilism and greed - the flow economy appeals to people’s highest ideals. Instead of being driven by corporate-induced consumerism it is driven by the need to sustain and promote life. Instead of overcompensating those at the top and disparaging those at the bottom it compensates everyone according to their contribution. Instead of being inherently exploitative it treats everyone equitably. And instead of rewarding marketability over merit it rewards us for making meaningful contributions to the world.
What is equally important, however, is that the flow economy does not resolve the inherent problems of the capitalist system at the expense of productivity, efficiency, motivation to contribute or economic growth - like other economic systems do (Socialism and Communism). Instead, the flow economy resolves these problems while putting us on a path to sustained growth and prosperity.
And yet the question remains as to what the transition process from the Market Economy to the Flow Economy would be like.
The beauty of the Flow Economy is that it does not require nationalization of industry or private property, violent insurrection or anything of that sort. The Flow Economy isn’t a totalitarian system – it is the exact opposite of a totalitarian system. read more…
bartering, capitalism, economic theory, efficiency, flow economy, money, transition
01May
Filed in Capitalism | Flow Economy
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I began this series with the prediction that in the next few decades disruptive technologies will bring the global economy to a total collapse.
I also stated that before I show what can be done to prevent such collapse, we need to understand how the market economy operates, and what are its strengths and weaknesses. For that purpose I devoted the previous two posts in the series (Part II : What Is Capitalism? and Part III : 12 Capitalist Myths) to explaining how the market economy works, and describing some of the problems of the market economy; the fact that it rewards marketability over merit, it is driven by corporate-induced consumerism, it overcompensates those at the top and disparages those at the bottom, it is inherently exploitative, its highest ideals are cynicism, nihilism and greed, and the economic theory behind it is based on flawed assumptions, such as the premise that humans behave like profit maximizing automatons.
So how do we confront such an immense and complicated challenge as preventing a global economic collapse and putting the economy on a path to prosperity? What should be evident by now is that the current economic system is hopelessly beyond repair; no amount of reforms can solve its problems or prevent it from total collapse. What we need therefore is a fundamentally new economic paradigm - one which can put us on a path to sustained growth and prosperity, and at the same time be robust enough to address all of the issues above. read more…
capitalism, economic theory, efficiency, flow economy, flow of life, resources
10Mar
Filed in Capitalism | Myths
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“What human motivation gets the most wonderful things done?” The answer is that human greed is what gets wonderful things done. I wasn’t talking about fraud, theft, dishonesty, special privileges from government or other forms of despicable behavior. I was talking about people trying to get as much as they can for themselves. (In Greed I Trust, Walter E. Williams)
…We don’t give second thought to the many wonderful things others do for us. Detroit assembly-line workers get up at the crack of dawn to produce the car you enjoy. Farm workers toil in the blazing sun gathering grapes for our wine. Snowplow drivers brave blizzards just so we can have access to our roads.
Do you think these people make these personal sacrifices because they care about us? My bet is they don’t give a hoot. Instead, they along with their bosses do these wonderful things for us because they want more for themselves. (Economics 101, Walter E. Williams)
Despite what Professor Walter E. Williams and other Libertarians would like you to believe, greed is not good. Greed means doing whatever you can get away with to get more for yourself. Greed does not motivate people to do the most wonderful things. It motivates people to do the least to get the most. It is the reason why so many of our best and brightest - 47 percent of Harvard University seniors in 2007 – head to Wall Street, and not to science, medicine or engineering. It is the reason why banks sold subprime mortgages to families who could not afford them. It is the reason why in 2006 financial sector profits constituted 27% of all corporate profits in the United States. And it is the reason why the New York State Comptroller’s Office in 2006 had this to say about Wall Street traders: read more…
capitalism, greed
10Mar
Filed in Capitalism | Myths
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Let’s make this perfectly clear: there is nothing wrong with people being confident in their abilities. There is also nothing wrong with people being proud of their achievements and success. No one is denying their initiative. No one is denying their talent or their hard work. However, there is something very troubling about people who believe they are self-made men. Because what’s implicit in their belief is the denial of the role of others in their success, and ingratitude for their contribution. read more…
achievement, humility, self-made
10Mar
Filed in Capitalism | Myths
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There is a certain absurdity about the way capitalist society is organized. The reality is that those who are at the top are treated best, and those who are at the bottom are treated worst. Therefore, everyone has the incentive to strive to get to the top. Yet, no matter how hard we try – no matter how much education or skills we have - we cannot all make it to the top. It is simply a logical impossibility.
At the same time, there are certain lines of work that are simply indispensable for the economy and for society to function - in agriculture, construction, manufacturing, education, healthcare and so on. Though the work itself is indispensable, in a capitalist society the workers are not. And though these workers labor for long hours, doing physically and mentally exhausting work, they receive low pay and few if any benefits. That is because in a free market economy the intrinsic value of their labor does not matter. read more…
capitalism, dignity, labor
10Mar
Filed in Capitalism | Myths
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When John Donne wrote No Man Is An Island he probably was not thinking of a capitalist society. Because in a capitalist society every man is an island – an island of self-interest and profit maximization. And though It is true that capitalism is not exactly a zero-sum game, the system is such that the interests of people - as consumers, producers, workers or simply human beings - perpetually come in conflict with one another.
Under capitalism one company’s success may be another’s loss. Less emissions may be good for the environment, but they are bad for business. Higher wages may benefit workers, but not the employer. Technological progress benefits everyone, except for those who get laid-off because of it.
Corporations are not interested in well informed customers. Fast food chains and soft drink companies do not want people to eat healthy. Credit card companies do not want people to be responsible or pay their bills on time.
The prison-industrial complex is not interested in public safety or reducing crime, it wants more prisoners. The military-industrial complex is not interested in peace, it wants to sell more weapons. read more…
capitalism, conflict of interests, cynicism, zero-sum game
10Mar
Filed in Capitalism | Myths
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There are certain things that the free market does exceptionally well; it makes people industrious and productive, it is responsible for the incredible abundance of products and services we have, and for our high standard of living. Yet, when it comes to providing many essential products and services the free market fails. Why does this happen? Imagine the following two scenarios:
In the first case a scientist is researching a cancer that affects 100,000 people every year. After years of research the scientist discovers that there are two chemical compounds that can effectively treat and cure the cancer. The scientist develops a drug and sells it in the market for $500 per pill.
The second case is very similar to the first. A scientist researching the same cancer discovers two compounds that can effectively cure the cancer. The only difference is that in this case these chemical compounds occur naturally in oranges and pecans.
Though the intrinsic value in both cases is the same – curing a cancer that affects tens of thousands of people every year, the market value is different. In the first case the scientist can expect to make millions, if not billions, of dollars by selling the drug in the market. In the second case the scientist cannot profit from selling any drug when natural substitutes are readily available, so she can at best expect to make a modest income. That is, if she doesn’t first go broke from repaying the loans for the research. read more…
capitalism, commodification, intrinsic value, market value, marketability, research
19Feb
Filed in Capitalism | Myths | Politics
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In the previous posts I explained what the market economy is and how it works. I also described how, in the next few decades, disruptive technologies can bring the global economy to a total collapse. In this series I will show what can be done to prevent such collapse and how to put the economy on a path to prosperity. But first we need to look at some of the problems of the market economy.
Now, before I go on I need to ask you – and this is particularly directed at all the Free Market Libertarians out there – to be patient and keep an open mind. The reason I ask this is that the knee-jerk reaction of free market advocates, whenever they see any criticism of capitalism, is to say: “what is your alternative? more regulations? more government? socialism?” My answer to that is: “no, no, and no.” The purpose here is not to see how capitalism stacks up against socialism, communism, or any other existing economic system – in that case capitalism wins hands down. Rather, the purpose here is to judge capitalism on its own merits. Only then, can we offer solutions to the problems we face. So before I offer my solution, let’s have a frank discussion about the shortcomings of the current economic system. read more…
capitalism, consumerism, cynicism, Dan Ariely, economics, exploitation, greed, laissez-faire, Libertarianism, motivation, self-made man
13Feb
Filed in Capitalism | Myths
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What motivates us? Standard economic theory states that the primary reason people engage in business or productive activity is for the profit motive. – ie., for money. It also states that people will always choose to maximize their reward while minimizing their effort. As we’ve already demonstrated before, however, there is a significant gap between what standard economic theory says and empirical reality. Why is that?
The simple truth is that social science knows more about human motivation than economic theory, and social science says that there is more to human motivation than just money. Namely, once people earn enough money to satisfy their basic needs, they become motivated by having a sense of autonomy (ie. the desire to be self-directed), mastery (ie. the urge to get better at things), and purpose in their work and life. Money is just not a good enough motivator.
We’ve already discussed the fact that giving people large monetary rewards for their work can result in poorer performance. Now let’s look at a few more cases that clearly demonstrate how money isn’t everything for motivation:
Altruism: an intrinsic motivator
In the 1990s, Swiss government officials wanted to build a nuclear waste facility outside the village of Wolfenschiessen. After a robust public awareness campaign, a bare majority of villagers—51 percent—supported the project. In hopes of bringing more people on board, payments of up to $8,700 per person was offered; instead, support plummeted to 25 percent. Villagers said they considered the money a bribe and felt belittled that their moral quandary had become a financial transaction. “The message was clear: People are much more altruistic than standard economics claims,” says Bruno Frey, an economist at the University of Zurich who studied the Wolfenschiessen case. “The challenge is for economists to nurture this intrinsic motivation instead of crowding it out.”
Contrafreeloading: preferring to earn something over getting it for free
The concept of contrafreeloading – a term coined by the animal psychologist Glen Jensen - directly flies in the face of standard economic theory, which states that organisms will always choose to maximize their reward while minimizing their effort. read more…
altruism, behavioral economics, capitalism, contrafreeloading, Dan Ariely, Dan Pink, gratitude, greed, labor, money, motivation, purpose
31Jan
Filed in Capitalism | Myths
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Do big bonuses improve the performance of corporate executives? Duke Professor of Behavioral Economics Dan Ariely examined this question in a series of experiments. Here are the results:
We presented 87 participants with an array of tasks that demanded attention, memory, concentration and creativity. We asked them, for instance, to fit pieces of metal puzzle into a plastic frame, to play a memory game that required them to reproduce a string of numbers and to throw tennis balls at a target. We promised them payment if they performed the tasks exceptionally well. About a third of the subjects were told they’d be given a small bonus, another third were promised a medium-level bonus, and the last third could earn a high bonus.
We did this study in India, where the cost of living is relatively low so that we could pay people amounts that were substantial to them but still within our research budget. The lowest bonus was 50 cents — equivalent to what participants could receive for a day’s work in rural India. The middle-level bonus was $5, or about two weeks’ pay, and the highest bonus was $50, five months’ pay.
What would you expect the results to be? When we posed this question to a group of business students, they said they expected performance to improve with the amount of the reward. But this was not what we found. The people offered medium bonuses performed no better, or worse, than those offered low bonuses. But what was most interesting was that the group offered the biggest bonus did worse than the other two groups across all the tasks. read more…
behavioral economics, Dan Ariely, motivation, reward
30Jan
Filed in Capitalism | Myths
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Many free market advocates cringe when they hear the words “capitalism” and “exploitation” in the same sentence. Yet, the inconvenient truth is that capitalism is exploitative in its nature.
Economic theory stipulates that all transactions in a free market economy are voluntary, and therefore by definition must be beneficial to both parties. The problem here is that, in reality, not all exchanges in the free market are truly voluntary. To give an extreme example, if I demand your wallet at gunpoint, and you “voluntarily” give me your wallet it can be said that this was a mutually beneficial voluntary exchange – I got your money, and you didn’t get shot. Therefore, the dynamic of the situation dictates whether the exchange is truly voluntary or not. Generally speaking, the fewer alternatives one party in a transaction has (or the more desperate it is) relative to the other the less voluntary is the exchange, and the more exploitative is the relationship.
But that is not the reason why capitalism is exploitative in its nature. The real reason is this: the capitalist system forces the individual to see no value in anyone or anything except as means to making a profit for himself. Who (or what) does capitalism exploit? The answer is: anyone (and anything) it can – starting with the environment itself and ending with those who are most vulnerable - women and children.
read more…
capitalism, environment, exploitation, labor, profit, resources, sweatshops, work
27Jan
Filed in Capitalism | Ethics | Myths | Politics
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Free market libertarians claim that capitalism is a moral system. They argue that “[t]he capitalistic social order . . . is an economic democracy in the strictest sense of the word” because “all decisions are dependent on the will of the people as consumers.” They further argue that “inherent in the nature of the capitalistic economy that . . . the employment of the factors of production is aimed only toward serving the wishes of consumers.” Therefore, they argue that “every dollar that an entrepreneur accumulates is evidence that the entrepreneur has provided value to someone.”
Based on this moralistic view of capitalism, free market libertarians argue that the role of government in the economy should strictly be to protect private property and prevent fraud (enforce contracts). They argue that any other interference in the workings of the free market would only produce an inferior result. That is because imposing regulations on the market, such as consumer protection or occupational health and safety standards, supposedly interferes with the market mechanism by which consumers and producers make cost-benefit tradeoffs, and by which scarce resources are efficiently allocated in the economy. read more…
Austrian School, capitalism, government, Libertarianism, nihilism, regulations, subjective value
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