Catallaxis

The Three Lenses of Threat Perception

Daniel O'Connor  |  Integral Ventures, LLC

In an article in the LA Times, psychologist Daniel Gilbert offers some insight into how people tend to evaluate the extent to which something like terrorism or global warming is a threat.  According to him:

NO ONE seems to care about the upcoming attack on the World Trade Center site.  Why?  Because it won't involve villains with box cutters.  Instead, it will involve melting ice sheets that swell the oceans and turn that particular block of lower Manhattan into an aquarium.

The odds of this happening in the next few decades are better than the odds that a disgruntled Saudi will sneak onto an airplane and detonate a shoe bomb.  And yet our government will spend billions of dollars this year to prevent global terrorism and … well, essentially nothing to prevent global warming.

Why are we less worried about the more likely disaster?  Because the human brain evolved to respond to threats that have four features — features that terrorism has and that global warming lacks.

What, in Gilbert's estimation, are the four features of perceived threats? 

1. they are the product of human intention;
2. they violate our moral sensibilities;
3. they represent an immediate problem; and
4. they appear suddenly or grow rapidly.

Inconvenient Truth

Daniel O'Connor  |  Integral Ventures, LLC

Last night, Karen and I saw Al Gore's new movie, An Inconvenient Truth.  It is, in my opinion, a very clear, compelling, and heartfelt documentary that profiles one man's authentic effort to educate people around the world about the need to deal with the global warming crisis. 

Thanks to the superb direction of Davis Guggenheim, the film offers an unexpectedly pleasant balance and interweaving of technical and factual analysis, moral and ethical challenges, and personal introspection and disclosure, with Al Gore speaking through all three of these voices in a manner that sounds completely authentic and genuinely above the deplorable politics of this controversial issue.  In philosophical terms a la the universal pragmatics of Jurgen Habermas, there is in this film a very effective differentiation and integration of validity claims in the three domains of what is true, what is right, and what is sincere--the critical ingredients of the shared understanding and coordinated action that is the apparent goal of this film.

Sustainable Growth: What is Right? Who Decides?

Daniel O'Connor  |  Integral Ventures, LLC

One of the important contributions of the ecological economists to the overall economic dialogue has been their emphasis on the notion of economic scale, which they generally define as a measure of the physical volume of matter-energy throughput, or the efficiency with which the economy is using the sources and sinks of the ecosystem.  When they introduce the idea of scale, they typically do so in contrast to the more widely accepted ideas of economic allocation and distribution.  As they see it, economics must address the perennial questions of allocation, distribution, and scale, seeking the appropriate means via market, state, and society to the desired ends of efficient allocation, fair distribution, and sustainable scale.  (Herman Daly, Beyond Growth, 45-60; Robert Costanza, et.al., Ecological Economics, 80-83.)  Clearly, there are some value judgements being expressed in the crisp adjectives they choose to define their desired ends, so I will often adopt a more transparently normative, but deliberately ambiguous term like right allocation, right distribution, and right scale.

As I presented in the article Sustainable Growth: Irreconcilable Visions?, I think we can benefit from the recognition of a fourth facet to economic development: that of economic depth.  The easiest way to grasp economic depth is to imagine growth in economic output, absent any growth in economic scale (i.e., steady-state scale) and independent of any growth in money supply (so real, non-monetary output).  What's left is growth in economic depth, or the depth dimension of the growth in economic output.  We talk around the concept all the time without really defining it, using terms like knowledge economy, intellectual capital, experience goods, organizational learning, trust, and innovation, which are all just different components of this economic depth.  As I have tried to demonstrate, the recognition of economic depth can reconcile the apparently irreconcilable visions of those who (accurately) recognize the ecological limits to economic scale and those who (accurately) recognize the potential for economic growth beyond these ecological limits.  Thus, we have to consider right depth in relation to right scale, right distribution, and right allocation.

Assuming for the sake of discussion that we can adequately define and measure degrees of economic allocation, distribution, scale, and depth, what can we say about right allocation, right distribution, right scale, and right depth?  Given the positive economic truths, what are these normative economic rights?  Who decides? 

Sustainable Growth: Irreconcilable Visions?

Daniel O'Connor  |  Integral Ventures, LLC

In the opening chapter of his signature book, Beyond Growth: The Economics of Sustainable Development, Herman Daly shares an unforgettable story from his days as an economist at the World Bank.  Having just listened to Lawrence Summers, then Chief Economist at the World Bank, make a presentation critical of the Limits to Growth thesis, Daly referred Summers to a picture of the economy as an open sub-system of the world's ecosystem, consistent with what I present below as Figure 1.  He then asked Summers if, given this picture, it might make sense to start thinking about the growth of the economy in relation to the natural limits of the ecosystem.  Dodging the question, Summers responded dismissively, "that's not the right way to look at it."  End of discussion.

Temporal Conundrum

Daniel O'Connor  |  Integral Ventures, LLC

We finally did it.  This past year, for the first time since the pit of the Great Depression, we in the United States managed to drive our annual personal saving rate below zero.  What this basically means, on the surface, is that all of us together, as a group, spent every dollar of household income we had leftover after taxes, plus another half a cent that we must have borrowed.  Of course, some of us did manage to save something last year.  But all of this saving was more than offset by all the dissaving the rest of us did.  Of course, this wasn't a great surprise.  The trend has been clear for a good many years and I've even discussed it in some previous essays, like Saving Ourselves and Saving Themselves?

Debt Trap

Daniel O'Connor  |  Integral Ventures, LLC

On this last day of Alan Greenspan's extraordinary reign as Chairman of the Federal Reserve, many in the media have been reflecting on his legacy.  Judging from the dozen or so articles and television interviews I've seen in the past week, the mainstream media and their chosen pundits seem to regard it as a very positive legacy, characterized by strong economic growth, mild price inflation, and relatively benign unemployment rates.  The one point of concern raised by some is the troubling accumulation of debt throughout the economy, particularly in the past several years.  

As the chart indicates, the total accumulated debt in the US economy--Total Credit Market Debt--is approaching $40 trillion at the close of 2005.  Since 1970, the year before the US government severed the final link between the dollar and its gold backing, Total Credit Market Debt has grown by an average annual rate of about 9.6%, a remarkably high rate that is even greater than the 7.3% average annual growth rate in the inflation-saturated Nominal Gross Domestic Product.  Thus, even fully inflated economic growth has not kept pace with the growth in debt over the past 36 years. 

While I am glad to see the media paying attention to this important economic factor, I think they are missing the essential point: given our current monetary system, economic growth and debt accumulation come hand-in-hand.

Four Sides of the Same Coin

Daniel O'Connor  |  Integral Ventures, LLC

By now, most of us have heard about the results of a recent study in which avowed Democrats and Republicans systematically ignored facts, by-passed reasoning, and emotionally rationalized their foregone conclusions regarding candidates from each party.  According to this LiveScience story, Democrats and Republicans Both Adept at Ignoring the Facts:

Democrats and Republicans alike are adept at making decisions without letting the facts get in the way, a new study shows.  And they get quite a rush from ignoring information that's contrary to their point of view.  Researchers asked staunch party members from both sides to evaluate information that threatened their preferred candidate prior to the 2004 Presidential election. The subjects' brains were monitored while they pondered.

"We did not see any increased activation of the parts of the brain normally engaged during reasoning," said Drew Westen, director of clinical psychology at Emory University. "What we saw instead was a network of emotion circuits lighting up, including circuits hypothesized to be involved in regulating emotion, and circuits known to be involved in resolving conflicts."

The test subjects on both sides of the political aisle reached totally biased conclusions by ignoring information that could not rationally be discounted, Westen and his colleagues say.  Then, with their minds made up, brain activity ceased in the areas that deal with negative emotions such as disgust. But activity spiked in the circuits involved in reward, a response similar to what addicts experience when they get a fix, Westen explained.

The study points to a total lack of reason in political decision-making.  "None of the circuits involved in conscious reasoning were particularly engaged," Westen said. "Essentially, it appears as if partisans twirl the cognitive kaleidoscope until they get the conclusions they want, and then they get massively reinforced for it, with the elimination of negative emotional states and activation of positive ones."  Notably absent were any increases in activation of the dorsolateral prefrontal cortex, the part of the brain most associated with reasoning.

CSR and Stockholder Value

Daniel O'Connor  |  Integral Ventures, LLC

For nearly 40 years, economists have debated the question of whether or not corporations have any social responsibility beyond the delivery of profits to their stockholders.  During that same time frame, corporate social responsibility has evolved from a counter-cultural idea into a mainstream movement with voluntary participation by countless corporations from all industries.  Despite its popularity, or perhaps because of it, CSR remains as controversial as ever, with critics and advocates alike repeating the same arguments over and over again, without resolution. 

In a recent essay, Gary Becker of the University of Chicago addressed the perennial question: Do Corporations Have a Social Responsibility Beyond Stockholder Value?

Do corporations have any responsibilities beyond trying to maximize stockholder value, adhering to contracts, implicit as well as explicit, and obeying the laws of the different countries where they operate?  My answer is "no", although maximizing value, meeting contracts, and obeying laws help achieve many of the goals by those claiming corporations should be "socially responsible" by taking care of the environment, considering the effects of their behavior on other stakeholders, and contributing to good causes.  Still, laws and contracts, and individual use of their own resources, rather than corporate behavior, should be the way to implement various social goals.

Asset Price Bubbles: Monetary Inflation and Leveraged Speculation

Daniel O'Connor  |  Integral Ventures, LLC

One of the best resources in tracking the credit dimension of the unfolding drama of stable instability is Doug Noland's excellent Credit Bubble Bulletin, in the latest issue of which he offers some choice excerpts from a panel discussion at a recent meeting of the Western Economic Association:

Question from the audience: “Professor (Milton) Friedman, do you think there’s a role for the Fed in identifying and managing asset price bubbles?

Friedman:  “No.”

Questioner:  “Could you elaborate?”

Dr. Friedman:  “The role of the Fed is to preserve price stability.  Period.  And price stability in a broad aggregate – in a broad index.  It should not be concerned with the asset markets as such, only as they effect indirectly – somehow – the price stability as a whole.” 

Federal Reserve Bank of St. Louis President William Poole:  “If I could just add to that.  I absolutely agree.  And one of the reasons I take that position – I’m really a hardliner on this.  Let’s suppose that the Fed – as you would want with any good policy instrument – had perfect control over asset prices.  I think it is incompatible with a market economy to have a government agency setting asset prices that are meant to allocate capital.”

Dr. Friedman:  “Asset prices embody a real magnitude that is a real interest rate.  And the Fed does not control the real interest rate.”

Saving Themselves?

Daniel O'Connor  |  Integral Ventures, LLC

In the midst of declining rates of saving in developed economies, led by their respective household sectors, it appears that businesses have been bucking the trend and actually increasing their saving.  With growing profits and relatively weak capital investment over the past several years, businesses have become net savers in the global economy.  As reported yesterday in The Economist, J.P. Morgan considers this one of the major factors underlying the conundrum of surprisingly low long-term interest rates in this era of apparent economic growth and monetary tightening.