Those of us who have worked in systems felt a twinge of sympathy for the folks at Research in Motion last week. Everyone’s Blackberry stopped working, and that device had become critical to modern business. But system failures happen. And in this case, all BlackBerry messages are routed through Research in Motion’s own data centers, which means information is more secure, but also creates a single point of potential failure. And they had one of those. One switch’s failure with a backup system had such an incredible “ripple effect” that it caused a world-wide outage for days. And now they’ll lose business to the iPhone and all the rest. Oops. But in systems you learn things the hard way. As a general rule when things come crashing down, whatever it was that caused the crash, don’t EVER do THAT again. Of course it’s too late – the damage has been done – but you do want to know why this happened. And you mutter never again, never again, never again…
But that’s a lesson for life in general. In the NFL there’s that snazzy trick pass play where you get intercepted, or worse, the quarterback gets sacked because none of the damned receivers are where they’re supposed to be. In junior high it’s that witty and devastating reply to your Social Studies teacher, and detention. In college it may have been that fourteenth beer, or deciding to major in Art History. Or for many it was that first marriage, the one that felt so perfect but wasn’t exactly thought through. Everyone learns by disaster. You learn – don’t ever do THAT again. And of course that is what the current Occupy Wall Street protests are about. The economy is a disaster, the One Percent is making out like bandits, and the Ninety-Nine Percent is getting screwed. Whatever it was we did – deregulating everything, believing free markets corrected their own inefficiencies, thinking that what made money was inherently good, or just thinking your own job was secure because you did good work, diligently – maybe we shouldn’t do that again. What we should do now, after the fact, is unclear.
But what happened? This wasn’t the failure of one switch in a backup system. Airliners have those voice and data recorders – those black boxes. We have nothing like that. And certified project managers in the systems world have all their fancy tools for root-cause analysis. But macroeconomics isn’t like that. Economists are often ideologues – believers in low taxes and little or no government and absolutely free-markets, or their opponents, suggesting what was put in place after the Crash of 1929 and the Great Depression which followed – the SEC and Glass-Steagall and all the rest – did good and kept us safe from periodic financial catastrophes. They can’t agree. FDR saved the nation by having the government do things, or he actually caused the Great Depression by having the government do things. One side says the other side’s root-cause analysis is pure crap, and there are no black boxes.
But how did we get here? That’s the issue. If you’re not ever going to do THAT again, what is the THAT in question?
And now there is much talk about that, some of it from Dani Rodrik, whose title at Harvard is Professor of International Political Economy. And he is the author of The Globalization Paradox: Democracy and the Future of the World Economy – “In this eloquent challenge to the reigning wisdom on globalization, Dani Rodrik offers a new narrative, one that embraces an ineluctable tension: we cannot simultaneously pursue democracy, national self-determination, and economic globalization.”
That does not sound like a fun read, but economics is often referred to as the Dismal Science. And as for what this man has to say about how find ourselves with a growing uprising against the current economic situation, or the system itself, there are those who will say that as Dani Rodrik is from Harvard, not Jerry Falwell’s Liberty University, that in itself is disqualifying. And of course Glenn Beck is clear on the matter of universities in general – “We have been setting up re-education camps. We call them universities.” Studying things is bad for you, or something.
But let’s assume studying things is not bad for you. And Rodrik has been studying Milton Friedman, and in a new piece in Project Syndicate suggests that if you’re looking for the THAT – that you don’t want to do again – Milton Friedman is a good place to start:
Friedman was one of the twentieth century’s leading economists, a Nobel Prize winner who made notable contributions to monetary policy and consumption theory. But he will be remembered primarily as the visionary who provided the intellectual firepower for free-market enthusiasts during the second half of the century, and as the éminence grise behind the dramatic shift in the economic policies that took place after 1980.
And Freidman was seductive at the time:
At a time when skepticism about markets ran rampant, Friedman explained in clear, accessible language that private enterprise is the foundation of economic prosperity. All successful economies are built on thrift, hard work, and individual initiative. He railed against government regulations that encumber entrepreneurship and restrict markets. What Adam Smith was to the eighteenth century, Milton Friedman was to the twentieth.
And he was incredibly influential:
As Friedman’s landmark television series “Free to Choose” was being broadcast in 1980, the world economy stood in the throes of a singular transformation. Inspired by Friedman’s ideas, Ronald Reagan, Margaret Thatcher, and many other government leaders began to dismantle the government restrictions and regulations that had been built up over the preceding decades.
China moved away from central planning and allowed markets to flourish – first in agricultural products and, eventually, in industrial goods. Latin America sharply reduced its trade barriers and privatized its state-owned firms. When the Berlin Wall fell in 1990, there was no doubt as to which direction the former command economies would take: towards free markets.
But the solution to the misguided inefficiencies of command economies was also the very problem of free-market economies:
In his zeal to promote the power of markets, he drew too sharp a distinction between the market and the state. In effect, he presented government as the enemy of the market. He therefore blinded us to the evident reality that all successful economies are, in fact, mixed. Unfortunately, the world economy is still contending with that blindness in the aftermath of a financial crisis that resulted, in no small part, from letting financial markets run too free.
And here is the gist of the problem, or what is in the black box after the place crashed:
Let the government simply enforce property rights and contracts, and – presto! – markets can work their magic. In fact, the kind of markets that modern economies need are not self-creating, self-regulating, self-stabilizing, or self-legitimizing. Governments must invest in transport and communication networks; counteract asymmetric information, externalities, and unequal bargaining power; moderate financial panics and recessions; and respond to popular demands for safety nets and social insurance.
And here’s the catchy metaphor:
Markets are the essence of a market economy in the same sense that lemons are the essence of lemonade. Pure lemon juice is barely drinkable. To make good lemonade, you need to mix it with water and sugar. Of course, if you put too much water in the mix, you ruin the lemonade, just as too much government meddling can make markets dysfunctional. The trick is not to discard the water and the sugar, but to get the proportions right. Hong Kong – which Friedman held up as the exemplar of a free-market society – remains the exception to the mixed-economy rule – and even there the government has played a large role in providing land for housing.
And Rodrik then refers back to the television show, where Friedman is the “smiling, diminutive, unassuming professor” holding up a pencil in front of the cameras talking about the power and wonder of free markets. You see, it took thousands of people all over the world to make this simple and useful pencil – to mine the graphite, cut the wood, assemble the components, and market the final product. And see, no single central authority coordinated their actions. And we got this cool pencil, thanks to the magic of free markets and the price system. No government was involved in any of it. Keep the government out of markets, entirely, and we get good stuff, everything we want and need, at a good price.
But Rodrik is a killjoy, noting that most of the world’s pencils are now produced in China, with its economy that is an odd mix of private entrepreneurship and state direction:
A modern-day Friedman might want to ask how China has come to dominate the pencil industry, as it has so many others. There are better sources of graphite in Mexico and South Korea. Forest reserves are more plentiful in Indonesia and Brazil. Germany and the United States have better technology. China has lots of low-cost labor, but so does Bangladesh, Ethiopia, and many other populous low-income countries.
Undoubtedly, most of the credit belongs to the initiative and hard work of Chinese entrepreneurs and laborers. But the present-day pencil story would be incomplete without citing China’s state-owned firms, which made the initial investments in technology and labor training; lax forest management policies, which kept wood artificially cheap; generous export subsidies; and government intervention in currency markets, which gives Chinese producers a significant cost advantage. China’s government has subsidized, protected, and goaded its firms to ensure rapid industrialization, thereby altering the global division of labor in its favor.
Friedman himself would have rued these government policies. Yet the tens of thousands of workers that pencil factories in China employ would most likely have remained poor farmers if the government had not given market forces a nudge to get the industry off the ground. Given China’s economic success, it is hard to deny the contribution made by the government’s industrialization policies.
So the idea here is that thinkers like Friedman leave what Rodrik calls “an ambiguous and puzzling legacy” – it is the interventionists “who have succeeded in economic history, where it really matters.” And of course, by implication, the idea here is also that the last several decades of curbing and then ending all government intervention in the markets was something that we should not have done. But the protestors down on Wall Street have been saying that sort of thing all along.
And see this comment:
During my lifetime, I don’t recall many people thinking that markets weren’t important for economic prosperity. But with conservatives, belief in markets is not a conclusion; it is a religion. That is the problem. Just as you can’t argue a Christian into denying the divinity of Jesus, you can’t argue a conservative into denying the divinity of markets. Last time I checked, however, theology was not a science, but economics was. You would never know it from “conservative thought.”
And Matthew Yglesias offers this:
I think it’s quite interesting to read historical, anthropological, and sociological accounts of state formation and people living in non-state social orders. It’s common to represent the market as in some sense “given” and the state as a kind of positive presence against the market backdrop. But that’s not how any actual society seems to have developed. Instead, property rights and contract enforcement evolve in parallel with other elements of the modern regulatory and welfare state. Even something as fundamentally free-markety as the floating exchange rate of the dollar is much newer than Social Security or the National Labor Relations Board, to say nothing of public schools.
So the problem might have been Uncle Milton. Markets and government develop organically, and intertwined over time. Like that trick pass play, Friedman said let’s try something new – let’s pretend markets can and should be severed from government, for the greater good – and then the quarterback got sacked. Hey, let’s not EVER try THAT again.
But we will. There’s something seductive about that high-risk trick play where you might just score a touchdown. It sure beats run after run, over the right guard, where you gain three yards, then another three yards, and then another, and a lot of bruises. Yeah, you get to where you’re going – that touchdown – but plodding, attending to blocking assignments and all the other details, is so boring.
But that’s who we are, as some of the problem is us, which David Brooks covers in his Sunday column regarding an issue there in New York:
Ground zero in Lower Manhattan is a mass grave. So when it came time to rebuild the World Trade Center, the whole enterprise was enshrouded with passion and symbolism. The developers wanted a project that would proudly assert the American spirit. They wanted to send a message that the terrorist damage would not last. They wanted it to commemorate the tragedy and celebrate the revival. Everything, therefore, had to be big: the country’s tallest building, the most expensive commuter rail station, the costliest memorial.
Born in grief and passion, the whole enterprise was soon plagued by furious discord. Personalities clashed. Practicalities were ignored. Building budgets didn’t mesh with the deadlines. There were arguments about the memorial and the proper definition of the word “patriot.” There was a lot of planning but not much execution. Symbolism eclipsed reality.
And he then tells the tale of Chris Ward, who had been Mayor Michael Bloomberg’s environmental protection commissioner, tasked to take over the Port Authority and rescue the ground zero project. And the man was a plodder:
Ward quickly understood his mission: to take a sacred cause and turn it into a building project. That is to say, to demystify it, to see it as it really is and not through the gauze of everybody’s emotions surrounding 9/11.
Ward set prosaic priorities – what would be built first, which parts of the project could wait. He cut costs by doing things like putting columns in the design of the transportation hall. He changed the name of Freedom Tower to One World Trade Center. He divided the construction deals into manageable chunks.
There would be no trick plays. This was about infrastructure, not pathos. That’s how you get things done, by “attending closely to all the practical complexity.” And that’s where Brooks extends the argument:
American politics in general could use that sort of disenchantment. Many issues that were once concrete and practical are distorted because they have become symbolic and spiritual. Tax policy isn’t just about how to raise revenue anymore. Liberals see it as a way to punish the greedy and redress the iniquities of capitalism. Conservatives see tax increases as an assault on the enterprising class perpetrated by arrogant central planners. A tax rate could be seen as just a number signifying an expense, but now it’s a marker in a culture war.
Well, blame Milton Freidman for that, but we are where are:
Maybe it is part of living in a post-materialist economy, but nearly every practical question becomes a values question. You get politicians and commentators whose views are entirely predictable because they don’t care about the specifics of any particular issue. They just care about the status war against their social enemies and the way each issue functions as a symbol in that great fight.
But there are what Brooks calls specific contexts:
Sometimes circumstances compel you to raise taxes, sometimes circumstances allow you to cut them. Sometimes government can promote innovation; in most cases it can’t.
Walker Percy once wrote, “God writes straight with crooked lines.” Translated into policy terms, that means it takes a lot of little zigs and zags over the terrain to get where you want to go. Mayors, governors and local officials do this all the time as they respond practically to circumstances. At the national level anybody who tries to zig and zag gets regarded as weak and traitorous by the economic values groups. There are rewards for those who fight over symbols, few for those who see the thing itself.
Ah, the thing itself! But those words set off Matthew Yglesias:
It’s a very distinctive phrase, derived from Kant, and Kant’s point about the ding an sich is that it’s unknowable and inexpressible. The precise concept is a bit difficult … but the basic idea is that there’s no way to see things except through the veil of perception. …
The basic topic of the column is perfectly plausible here – a call for people to be more practical. But why link that idea specifically to Kant’s phrase, and then use it to call for us to do something that Kant says is impossible?
Yglesias is not impressed:
The esoteric argument, I think, is that people necessarily engage with mass politics on a symbolic and expressive level rather than a practical way (voting isn’t very practical) so our endeavors are doomed to failure.
Well, that may be so. But there are all those protesters down on Wall Street, and everywhere now. There are some things you don’t ever want to do again. You just have to figure out what they are.