What I'm getting from Listening to BigThink's Economic Crisis Discussion

The economy is changing. Bubbles of various kinds embody the beginnings of major post-Bush upheaval. Recession fears loom. Housing prices are flat and new building is at a standstill. Trust has eroded between Main Street and Wall Street threatening their interdependence. Investors fear citizens borrowing irresponsibly and then defaulting, just as citizens fear parasitic financiers accumulating capital out of the pockets of ordinary working people.

What lies ahead, and what do we do now, and who is this "we" anyhow?

It's apparent that real investment will take place in energy development, probably to the point of a future energy bubble. On the Web 2.0 front, which I hope to read up on later, all is going to the cloud. Investment in new technology doubtless will continue. Social networking will keep driving changes as human relationships are analogized more and more deeply in the digital world. Will manufacturing and food production be forgotten tomorrow? More likely those will be rethought as well and new logistics will develop around them.

Addressing what we measure depends on what our goals are for the future, but those are varied and vague enough that they can't exist independent of today's knowledge. So what we know now, i.e. what we measure now, will not simply change to something better. The changes will be complex and often times conflicting.

For example, measuring productivity has been a staple of economic understanding for some time now. The benefit of this is rather obvious for a traditional manufacturing economy or an agrarian economy seen through an industrialist's lens. The more you produce, the greater your productivity. The more that can be produced by fewer and fewer people, the greater the productivity for that group. This is fine if you're growing corn or manufacturing scooters, until everyone's cupboard overflows with corn and then productivity is reframed as excess capacity. Popular understanding comes to realize there's too much corn to sustain prices at a level the corn farmer can get paid enough to buy the new scooters his identity as a modern consumer depends on (fortunately, thanks to productivity gains, there aren't so many corn farmers as there used to be, and the problem of excess corn can be seen as an opportunity for the growing population of hedge fund managers looking to sell corn even shorter).

For the corn farmer, the problem is different. Like the scooter manufacturer, the farmer is paid for being productive, and when prices decline the only solution is to produce more. Stop producing, stop getting paid. Slow down and you're asking for a pay cut. It's a self-fulfilling recession waiting to happen.

Then someone comes along and finds a cheap way to turn all that corn into fuel. More demand for corn, lots of uncertainty for scooters. What if people go back to buying trucks? The ensuing drama yields to the opportunity to build bigger, more powerful corn-powered scooters (with a picture of an ear of corn affixed to the gas tank). Everyone now needs new scooters, and prosperity marches ahead.

When your economy tips from producing corn and scooters to producing information, the story of productivity changes. Indeed, BigThink panelists (Summers I think) among others point to declining productivity as an economic alarm. Looking back 30+ years, there was a time where it was imagined productivity would naturally plateau, and that this would be a good thing. The point generally missed today by our industrial statistics farmers is that a leveling off of productivity, or economic growth for that matter, would indicate that capacity is sufficient to meet human needs, and it was time to turn to other newer activities.

Whether or not you continue to measure productivity, the classic calculus of it is likely inappropriate for an information society. Do you count the number of myspace pages as productive output? Or measure the count transactions that occur per day or per month, assuming more is better? That's good if you're paid by the transaction, like many in the finance industry are. But framing productivity this way is one of the biggest reasons classic industrial models fail. The new thinking in manufacturing since the ascendency of Toyota, is to focus on value. Eliminate waste, they say. Do not produce things that are not needed. Do not mindlessly drive production in order to continuously increase your numbers. Instead, understand what is needed from you and focus on that.

This offers a rationale for thinking beyond productivity as a goal, but shifts the goal toward building less measurable things. How do you measure "value to customers"? In recent years many analogs have been developed: repeat purchases, survey results, lots of information-based measurables. To be meaningful in an economic paradigm, however any indicator of value must eventually be translated to money, though some like Kevin Kelly and Chris Anderson seem to want to think about transcending that, at least conceptually.

So if your manufacturing and / or farming economies shift from producing goods to producing semantic tokens, or, alternatively, if we move toward something like an "innovation economy" or a "conservation economy" as visionaries like Amory Lovins imagine, it seems the important measurement is not how many of something is produced -- how many ideas did you get today? How many patent applications did you take out? Those may be measurable but are not relevant. I don't know the answer to how or if a paradigm of continual growth can or should be sustained, but suspect that a global economy will need to be seen more holistically, as a closed and finite system. This implies a greater validity to the idea of redistribution of resources, which I know most people vested in the present economy are fearful of. But the question comes down to what we are in it for. And I hope we ultimately will answer on the side of mutually assured survival rather than mutually assured destruction.

Source: www.bigthink.com/features/896
A conversation between George Soros, Larry Summers and Robert Merton.