The Elegant Economy Does Not Economize

In art, we reserve the word “elegant” for works that hide the difficulty of their execution. The elegant work is at once powerful and simple. Though the author may have spent a lifetime on its composition, there is no hint of effort in the work. Once the scaffolding from which the sculptor worked is removed, once the guidelines of the draftsman have been scrubbed from the page with an eraser, once the manuscript has been retyped and the markup trashed, only simplicity and perfection remain. The work might as well have sprung fully formed from the head of Zeus.

We should also strive for elegance in the provision of goods and services, and that can mean only one thing: free. That is, the experience of acquiring goods and services, which is the characteristic experience of economic activity, should be as simple as walking in and taking. That is the only elegant way to acquire.

Any other approach reveals the superstructure that supports production, and is decidedly inelegant. To ask for payment is to admit that production is hard. You have suffered and so you require compensation. And to be asked to pay exposes you to all of the tradeoffs involved in economic activity. You must decide whether you can afford the good, and this in turn invites you to meditate both on the reasons for which you are poor (that is, the scarce talents or good fortune that you lack) and the reasons for which the good you wish to acquire is so scarce that it commands a price. You are forced to peer for a brief moment into the inner workings of the economy—the gears, and production functions and demand curves—that run together to foist a price on you.

It is rather like being asked to view Michelango’s David with the scaffolding still attached, or the Mona Lisa with the grid lines through which Da Vinci painted still pulled across the lady’s face. Or perhaps even more justly, it is rather like being asked to watch a film by hanging about the set and viewing each monotonous take after another—instead of relaxing in a theater to behold the final cut.

There is nothing so damaging to the enjoyment of a thing than to meditate on what one had to give up in order to obtain it.

The challenge for economics is fashioning a system that at once promotes economic growth and maximizes the opportunity to acquire without worrying about whether one can afford the good.

It follows that an elegant economics should strive not to maximize the responsibility of the individual for economizing—as economists strive to do today—but rather to obscure the problem of economizing from the individual, to hide it so cleverly that people can go through their lives unaware that they are in fact subject to the inevitable laws of scarcity.

Because scarcity is real, nothing can actually be made free. Everything must be produced and so paid for. But there are ways for the clever economic artist to minimize the experience of paying.

The most important is the bundle. To minimize the experience of paying, reduce the number of times in which people actually must pay for things. To minimize the number of times in which people actually must pay for things, sell things together in bundles.

Economics already has a logic of bundles. Today, economists promote bundles when the parts have synergies, so that the whole is more valuable to consumers than the sum of the parts. Consumers prefer the iPhone, with its closed architecture that deprives customers of choice regarding what battery to use or what operating system to install, because when Apple bundles its selection of these things together the phone “just works” at a higher level than more customizable phones.

I mean something different.

Bundles, even when they do not exhibit technical synergies, can be elegant so long as the bundle is not so large that the price speaks loudly of scarcity. Consider the old airline economy class bundle, which included free checked bags, your choice of economy seats (no extra fees for an exit row), a reasonably-sized seat, and a full meal during the flight. After paying a somewhat higher fare, you didn’t need to think of scarcity again until you bought your next plane ticket. Checked baggage, meals, and seat selection bundled together aren’t greater than the sum of their parts—in fact they’re delivered in the same way when sold as a bundle as when you are charged separate bag fees, seat fees, and so on. Bundling them together adds value solely because it obscures scarcity. When they are bundled, passengers are not reminded of the sizes of their pocketbooks when they sit down to pack, when they choose a seat, and when they start feeling hungry mid-flight.

We get a hint of this, too, in the all-you-can eat buffet. Maybe it’s just clever marketing: diners think they get a better value when on average they don’t eat as much as the extra bucks they pay for their meal. Or maybe it has to do with elegance. It’s nice to be able to ask for seconds without worrying about the price.

Which begs the question: if it’s so nice, why don’t firms offer more bundles of this kind? Doesn’t the fact that the trend in recent years has been toward unbundling products and services suggest that consumers actually prefer to be able to choose what they pay for and what they don’t?

That could be. But the logic of elegance also suggests that consumers are never really presented with a choice between the two systems, even when a firm offers the option to pay more for a bundle or less for a la carte service.

Here’s why.

Suppose that an airline offers a full-service ticket that includes priority seating, a full meal, and free checked baggage and also offers a somewhat cheaper ticket that includes just a seat, with the other services provided a la carte. In this case, the cheaper ticket is the elegant solution in that it it speaks less of scarcity than the more expensive ticket. That is, when faced with a choice that involves a lower-price option and a higher-price option, consumers will tend to prefer the lower -priced option, even when it involves less value for money, simply because a lower price speaks less of scarcity than a higher price.

In order to elicit a true comparison of consumer preferences, one would need to place the consumer in a world in which only the lower-priced option is offered and then place the consumer in a world in which only the higher priced bundle is offered, and then ask the consumer to compare his relative pleasure in the two worlds. That can never be done perfectly because the options can never be offered at the same time—although in cases in which there has been a historical change, as with airlines, the recollections of people who lived through both regimes offer some guidance. Ultimately, we must guess which of the two worlds confers more pleasure.

An elegant economics concludes that consumers prefer bundling when it can be had at reasonable cost.

All this is not to say that everything should be bundled so that we end up with something like a centrally planned state in which the government sells you a single bundle called “the luxuries and necessities of life.” The bigger the bundle, the greater the waste, because market signals are reduced. In the years immediately after the discontinuance of economy meals on domestic flights, airport kiosks sold meal trays that mimicked the ones that had once been served on flights. Today, those are rare; indeed, people don’t seem to do much eating of meals at all on domestic flights. That suggests that for years airlines provided a meal perk that customers may not have valued much at all.

There is an optimal bundle size, neither too small nor too big, but if one takes elegance into account, it is likely much greater than what we have today.

But it is worth noting how much apparently elegance-based bundling already exists in the economy. Consider, for example, pleasant customer service. There’s no synergy created with your pizza by a cashier’s smile, and yet businesses encourage their cashiers to smile. They could charge a premium for it—and through tipping cashiers themselves may do something like that—but they don’t. The checkout experience is vastly more elegant when the purchase price covers a smile plus pizza rather than just pizza.

In fact, there are an immense number of freebies of this kind that go into every good or service offered by a business—things that a business thinks consumers would be pleased to see included but for which they likely would not pay if offered a la carte.

We often assume that these things are offered to achieve a competitive advantage, but the successful unbundling of the air transport product, of which the same assumption might easily have been made, suggests that businesses themselves have a basic taste for elegance. (Yes, the airline industry has consolidated over time, so the unbundling could have something to do with a decline in competition, but keep in mind that this started twenty years ago.)

Another example is average cost pricing. In certain apartment buildings in certain older American cities, it remains the case that residents receive no utility bills. The cost of utilities—water, gas, and electricity—is averaged across all renters and included in their monthly rent. This is an elegant arrangement for it reduces the number of bills a renter pays, greatly obscuring scarcity. To be sure, some residents—power users—gain relative to a system of individual billing and others—those who use less—lose out. But as few are able to monitor the usage of others, no one knows who the losers and winners are. So long as there is no extreme abuse of the system—a resident taking advantage of average cost electricity pricing to run a crypto mining operation, for example (and a little policing by building management can root any out)—residents can go about there lives as if utilities were free.

The same is true, of course, of government-provided goods and services. The trend in recent years has been for government to try to allocate costs to users. Think about steep visa application fees designed to cover the costs of immigration services. But it is much more elegant to pay for the service out of general tax revenues, so long as abuse can be policed at reasonable cost. Many Americans advocate, for example, for “free college”, as if government provision of education would somehow make it free. They really pay for college through their tax payments, but because they rarely know the precise amount that they contribute toward any particular service, it is rather as if they contributed nothing at all. When people say “free” in this context, they are telling us something important about how elegance works in economics. The less you know about scarcity, the free-er you feel yourself to be.

If the foregoing analysis is right, then the great movement in recent decades in favor of creating markets in everything has ultimately been bad for America, because it has forced consumers to confront scarcity in myriad places in which it had once been hidden. Consumers now must confront scarcity with respect to almost everything they do when they fly. In some cities, they confront it in the form of paid fast lanes when they drive. They confront it in streaming television, where they are increasingly asked to buy a la carte. They confront it in purchasing movie tickets; the good seats are now priced higher. And so on.

Elegance in economics does not only require that paying be concealed but also that other experiences that suggest scarcity be conceal as well.

Consider, for example, the mega-project. Because a mega-project serves a great many people, the cost per person in terms of a toll for use is low. A private business undertaking the project will build a facility that is just large enough to accommodate peak demand.

But to be in an airport that is just large enough to accommodate a crowd is to come face to face with the problem of scarcity. Of space. Of customer service representatives. Of patience.

An elegant economics would require that the builder calculate the minimum space required to meet peak demand—and then double it.

This would certainly be a problem for smaller projects with large per unit costs. For the doubling would drive the toll up a great deal, and being asked to pay a lot for something is just as rudely indicative of scarcity as is occupying a small facility during peak demand. But for a mega project in which per person costs are very low, a doubling will barely register in the mind of the consumer. To pay $2 to enter an airport rather than $1 speaks rather little of scarcity. And the payoff, in terms of the elegance of feeling as though one were alone in a vast space, is great. Imagine that every airport in the country had been built to twice its current size so that no matter how many people were flying on a given day there were always lots and lots of space.

In our inelegant economics of today this would never be tolerated. A private business would never spend twice what it needs to spend to complete a project. And if it were induced to do that by a government which, for example, offered loans to finance larger projects, the cry would be: “overbuilding.” But overbuilding—within limits—should be our aim for every large project, so as to minimize the experience of scarcity and to maximize the experience of easy plenty.

To understand elegance in economics, we must draw an analogy between economics and architecture. The classical architect engaged to build a wall could choose merely to deliver a blank face to you—and some modern architects would do just that. But the classical chooses instead to add an entablature—a set of lines cut superficially into the stone that run along the top of the wall. Why does he do that?

Because the grooves—or, rather, the shadows that the grooves create—make it easier for the eye to grasp the size and shape of the wall. A blank face has no scale and no form. Groove it in the right way and the eye knows immediately the extent of what it beholds. The purpose of embellishment in architecture is to make it easier to consume the work on a visual—indeed, mental—level. In the same way, the purpose of elegance in the provision of goods and services is to make the process of acquisition easier on a mental level. Both approaches have costs. It is cheaper to build a wall without an entablature, and bundling or socializing services leads to waste.

But elegance is a good, and all goods have costs.


Death’s Rejection of Itself

One might say: How terrible the world really is! Why give life to physical objects, when it is the fate of physical objects to be crushed and destroyed? Why, in other words, have life in a world of death? Or one might say: Life was needed precisely because it is the fate of physical objects to be crushed and destroyed. Life is their response to that fate. It is the caring of the rock for itself. It is the self love of the physical world. The living thing flits about, escaping the destruction that otherwise would surely come for it sooner. Death is not an alien thing that has been brought to life. To the contrary, we are and have always been dead things. Life is death’s rejection of itself.

In other words: To see death as a taint on the world is to measure against the wrong baseline.

Despair Meta Miscellany

Cover, Dispersion, and the Defense of Schools in Depth

The principal problem with liberal gun rights policies in the modern age is the same problem that has bedeviled all modern warfare: firepower. What do you do when a single rifleman with enough ammunition can wipe out hundreds of people per minute?

This was, of course, a problem with which militaries were much concerned between 1914 and 1918 in particular. One might have expected that the principles that they developed in response would have been put to use already by school defense planners, especially since those principles govern the way all armies today deal with the same problem of firepower that schoolchildren now face.

But they have not been applied.

To my knowledge, the principal principle employed today by schools is that of concealment. If a shooter enters the building, classroom lights are to be turned off, doors are to be locked and barricaded, and children are to hide.

Concealment is, indeed, one of the methods that World War One tacticians identified as a means of dealing with firepower.

But it’s just one, and far from the most important—especially when the enemy has a rough sense of where you are. If he knows you’re behind a wall, or a door with a few chairs and desks up against it, he doesn’t need to know exactly where you are. With enough firepower, he can shoot up the entire wall or the entire door, and everyone behind. Just so, the modern soldier is taught to distinguish between concealment and cover.

Cover as in armor or concrete: stuff that stops bullets and negates firepower.

Cover is another method that World War One tacticians identified as a means of dealing with firepower. But it, too, is not enough. Cover works, but only if you can prevent the enemy from closing with you and pulling you out of your cover. In war, that is done by marrying cover with firepower of your own. You can close on a tank that has no gun, but not so easily on a tank that has a gun.

But it’s hard to marry a school with firepower of its own. The trouble has to do with the element of surprise. You need to have a lot of guards on duty at any given moment in order to minimize the advantage an attacker gets from surprise. Guards get bored and fail to notice things. They panic. They run. And they get shot before they can reach for the arms that they have careless cast aside. You would need a garrison effectively to support an armored school.

Absent such a garrison, you can armor your doors and make desks and chairs from concrete, but all the enemy needs to find is one unlocked classroom door and he’s in—and will have plenty of time to step behind every concrete desk or chair therein.

Cover, too, does not exhaust the principles developed by World War One tacticians.

Another is: dispersion.

Modern weapons can bring astonishing amounts of firepower to bear on discrete areas, but they can’t bring astonishing amounts of firepower to bear on everything at the same time. That is especially true for a lone rifleman.

The more dispersed the targets, the longer it takes to hit all of them.

Which brings us to one of the principal school design flaws from the perspective of modern defense: schools concentrate students. Once the shooter has entered a classroom, the walls of the classroom corral his targets whereas modern tactics demand that targets disperse in order to defend successfully.

But the most important lesson that tacticians learned in World War One was something else: combination.

A successful defense cannot be mounted using any one of these principles alone. Concealment alone won’t do it (the enemy will just shoot all the concealed places). Cover won’t do it (the enemy will just close with you and pull you out). Dispersion won’t do it (given enough time, the enemy will find a bullet for every target).

You have to use them in combination.

If you disperse and conceal yourself behind cover, the effects of the enemy’s firepower are much reduced. It will take him longer to find you, make it harder for him to hit you, and take him longer to hit all of you.

This was the rationale behind the defense in depth developed by the Germans toward the end of the war.

Rather than concentrate thousands of defending troops in a frontline trench against which the allies could bring to bear massive firepower, the Germans created a deep patchwork of trenches, lightly manning each. They took advantage of natural obstacles, like hills, by stationing troops on reverse slopes. And they devolved authority onto commanders of small teams of defenders whose job was to adjust their positions dynamically as the battle evolved to maintain dispersion. This approach soon became a staple of modern tactics.

Modern militaries deal with firepower by deploying cover, concealment, and dispersion in combination. The least schools can do for their students is to deploy same.

The first and most important change that must be made to school defense is to eliminate the corralling effect of classroom walls. As soon as an attacker is known to be inside a school, the walls separating the classrooms from the outside world must disappear. Make them garage doors, say, and program them to spring up at the first sign of trouble. (A more fanciful approach is illustrated below.)

Interior walls should be armored and stay in place, as one doesn’t want temporarily to increase the number of available targets—concealment and cover still matter within the building—but the exterior walls should disappear, allowing students and teachers to disperse as fast as their legs will carry them.

But that, alone, is not good enough.

Rather than disperse into open fields enabling our rifleman to mow down fleeing students like a World War One machine gunner overlooking no-man’s land, students must disperse into concealment and cover.

To achieve this, schools must be ringed by concrete blocks in irregular patterns (irregular to deny the shooter an unobstructed field of fire in any direction). (Even better, they should be great concrete busts of historical figures, so that they both teach and protect.) As soon as the outside walls go up in response to a threat, students must be able to flee into cover and concealment of this kind. The blocks must be spaced closely enough to conceal and cover, but not so closely as to prevent students from continuing to run and run and run; for they must not stop behind these blocks, but weave through them, continuing to disperse (according to arrows conveniently painted throughout this field of cover) until they have arrived behind the cordons set up by first responders.

Here the box-like outside walls of a schoolhouse are tethered to a boom which jerks the walls away at the first sign of trouble. Students are then free to flee to safety in all directions using the cover and concealment provided by a dense assemblage of irregularly-spaced concrete blocks.

In this way, the rifleman’s firepower is almost completely negated. In seconds, his targets disappear behind cover and concealment. He must chase them down on foot, close with them, one by one, and each time he pauses, all the other targets recede further from him. He cannot see them. He cannot shoot them from afar.

A country that gives each person a right to that hallmark of modern warfare—firepower—must give its students the benefit of modern defensive combat tactics. It must give them the defense in depth.

Of course, another approach would be not to honor an individual right to modern firepower in the first place.

Meta Regulation

The Other Conflict of Interest and the Root of Inequality

It is common in the study of corporate governance to worry about the conflict of interest between shareholders and managers. Managers are supposed to run the firm to maximize shareholder value, but because they run the firm on a day-to-day basis, not the shareholders, they have plenty of opportunity to enrich themselves are shareholder expense. Others worry that the power of shareholders and managers over firm governance enables them to cheat creditors, workers, and sometimes even suppliers.

But there is another interest that no one ever talks about, and which is even less able to defend itself than are shareholders against managers, or creditors, workers, or suppliers against shareholders and managers.

That is the firm itself.

The firm is not its shareholders. It is not its managers. It is not its workers, creditors, or suppliers.

It is a fiction in the sense that a firm always is a fiction, a thing that exists only because shareholders, managers, workers, creditors, suppliers, and the government act like it exists. It has no flesh and no blood. It cannot be found anywhere; or, rather, it is located wherever the law says that it is located rather than where the laws of physics place it.

But it has a name: the name of the business.

It can open bank accounts.

It can own property.

It can sue.

It even has a right not to be deprived of life, liberty, or property without due process of law.

The firm exists in the way that the mime’s wall exists. There is nothing there, but his hand stops as if it were there.

Just so, the corporation exists because we speak as if it exists. Because we find all of our legal institutions bending around its form as if there were something there to bend them.

And yet, despite all the care that we take to act as if there really were an independent, living, breathing thing that is the firm, when it comes time to count up conflicts of interest, we never talk about the conflict between the interests of shareholders, managers, workers, creditors, and suppliers—and the firm itself.

We recognize that there must be such a conflict, and we even have an entire body of law—agency law—devoted to protecting the firm itself against managers and employees who put their interests before the firm’s. We say that managers and employees have duties of loyalty and care to the firm.

And yet we seem hardly able to take such duties seriously, or, at any rate, fully to appreciate that they are owed to the firm—to the mystery, to the fiction, to the hollowness beneath the mime’s hand.

We say that the board of directors owes a duty to the firm, but we think that the duty is really owed to the firm’s shareholders, or to its workers, or to whatever set of actual, living, breathing persons are ultimately harmed by the cupidity of the firm’s agents.

We comply with the fiction that managers and employees owe their duties to the firm by describing the shareholders who sue careless or disloyal managers as filing a “derivative” lawsuit on behalf of the firm. The shareholders have no direct claim against the wrongdoers, we say, because the wrong was done to the firm and not directly to the shareholders.

And we comply further by asking that any recovery be paid first to the firm as compensation for harm to the firm and only thence to shareholders.

But we experience this part of the fiction of the corporate person as unnecessary. Nothing would be lost were shareholders to be permitted to sue managers directly.

We are wrong to do that.

If we were actually to take conflicts with the firm seriously, we would come to a very troubling thought indeed: that the mute, defenseless fiction that is the firm is surely the worst victim of self-interested behavior of all.

Conflicts run deepest not between shareholders and managers, or even between managers and workers, but between all of these groups and the firm, because of all of these groups only the firm lacks a physical presence and hence even the slightest semblance of autonomy. The firm exists entirely in the unseen world behind the world, and speaks only through the very groups—the shareholders, managers, workers, and so on—from which the firm needs protection.

And the firm does need protection because the firm’s interests are necessarily always in conflict with those of shareholders, managers, workers, and all the other counterparties of the firm.

Because the firm never dies. It alone is in business for the long term and the long term interest is almost always in conflict with the short term interests of mere mortals.

Imagine that a firm generates a billion dollars in net income and that maximizing the long-term—as in over the course of the next two centuries—profits of the firm can be achieved only by investing that billion in clean energy technology.

It is easy to imagine that no flesh and blood humans associated with the firm might be interested in actually investing the money. The shareholders might want it paid out as dividends (they want to party). The managers might want it paid out in executive compensation (they want to party). The workers might want it paid out in retirement benefits (they want to party). The creditors want their debts paid. The suppliers want higher contract prices.

The the profit-maximizing firm—yes, the firm, that metaphysical life force, that abstract interest—would want the money invested and, if all the assumptions of general equilibrium theory hold, the fact that the profit-maximizing firm would want the money invested implies that investing it is necessary for the efficient operation of the economy. It is required to maximize economic growth and otherwise to launch society forward to the greatest extent possible.

But the firm with not invest the money. Because the flesh and blood humans who control what the firm does, who are agents to the firm’s fiction, mimes to its hollowness, don’t want that to happen. The door might want to be opened, but the mime will shut it.

The money will be spent instead on shareholders, managers, workers, creditors or suppliers, and both the firm and the economy will be smaller for it in the long run.

What’s more—and this is important—legal duties will have been breached by this failure to invest. Management will have violated the duty of care, which requires managers to operate the firm with a view to maximizing the firm’s long-term profits.[1]

But no one will sue.

Shareholders will not bring a derivative suit on behalf of the corporation—they wanted to be paid.

Competition will not force the firm’s agents to behave—lest competitors take the firm’s market share and put the agents out of their jobs—because the consequences of a failure to invest for the long term manifest in the long term.

One can only imagine how much bigger the economy would be, and how much more successful the firms in it, if the conflict of interest between the firm itself and its agents were not to exist. Or if there were some way of protecting firms against it.

Imagine all the investments that have not been made throughout history because those in control of firms preferred consumption to saving.

One gets the barest hint of how bad the problem must be in the hysterical objection of business elites to mid-20th-century price regulation in industries such as telecommunications, air transport, and energy distribution. Or the hysterical objection of business elites today to attempts to limit the scope of patent grants in order to prevent windfall gains from intellectual property.

The government, businessmen argue, systematically sets prices—or, in the intellectual property context, rewards—too low, because it fails to take into account all of the investment that must be made in the future of a business.

Firms must invest in research and development.

They must insure against risk.

And so, businessmen argue, what looks like profit really is not profit, but rather a cost of long-term survival and flourishing of the firm.

Ah, but if that is the case, if we cannot trust rate regulators adequately to determine how much must be spent for a firm to flourish, why should we be able to trust shareholders or managers to do that either?

It is not, after all, in their interest to carry out that analysis faithfully, for they can never have an outlook quite as long as the firm’s.

If we think that rate regulation was bad for American business in the mid-20th century, or that stinginess with the patent grant is a big problem for the dynamism of the American economy, we must—must, must—wonder just how bad the totally unaccountable dominance of flesh and blood over fiction, of the agents over their dumb master, must be for American business.

How much less is invested than optimally should be?

This, it seems to me, explains much—not just about a structural inefficiency in the economy but also about the structural maldistribution of wealth.

Why is it that the captains of industry are so rich? Is it just that they control scarce resources? Or that they have some monopoly power? Those are, to be sure, causes.

But I wonder whether the most important is not, quite simply, that they underinvest—and keep the difference for themselves.

When I was in high school, I ran an assassin game with a classmate. I ordered some very cheap waterguns direct from China. We asked every student to pay $30 to participate in the game. We gave each student a cheap water gun and the winner $200 as reward.

There were perhaps thirty participants, which made the game very profitable.

I was so embarrassed about this windfall that I let my surprised coventurer keep all of the profits, which he used to take a trip to Europe.

I was afraid to profit and he rejoiced in it. But the point is that both of us thought of the windfall as profit.

But was it? Neither he nor I thought for minute about the interests of the business.

Perhaps the best thing for our assassin business would have been for us to invest that money in the following year’s game. We could have increased the reward, attracting more participants. We could have ordered better guns. We could have organized a joint game with another school. Whatever.

But while these were the interests of the business, they were not our interests. The business was mute; and so we ignored it.

One sees this also, I think, in how homeowners treat their houses. It is very often the case that a person will buy a house that he would not be willing to rent because the rent would be too high.

Perhaps the house is very large, or there is a shortage of rental units in the area. Whatever the case, when a person owns and lives in a house that he would not be willing to pay to rent, he is putting his own interests as a customer and indeed shareholder (i.e., owner) of the space-selling business that is his home before the interests of the business itself.

His home could generate greater profits by being rented out and indeed those profits could be invested to improve the home or expand the business to include other properties, making the business and the economy better off.

But none of this happens because the flesh and blood person who controls the business would rather forego (read: consume) the profits that could otherwise be generated by renting to others—and which would lead to long-run profits—in order to enjoy the pleasure of living in a big house, or in the right neighborhood, or what have you, right now.

Once you understand the problem, you see it everywhere.

The owner of my car repair shop was kind enough to give me a lift in his personal, very expensive vehicle while I was getting my oil changed. What portion of the purchase price of that car should he have reinvested in his business? We will never know.

Indeed, one wonders what proportion of all the executive compensation, all the share buybacks, and all the dividends paid out to owners over the past few decades—payouts that turned an L-shaped postwar inequality curve into the U-shape of Piketty fame—should optimally have been reinvested in the firms themselves.

That is, one wonders whether, if the fiction that is the firm were real and could defend itself, captains of industry would be no richer than the rest of us, and the economy a whole lot larger.

One might think that the solution is for the state to step in to protect business fictions against their flesh and blood agents.

And perhaps that is right. We need regulation not just to protect consumers against grasping firms, or shareholders against grasping managers, but to protect firms—those helpless fictions—and indeed the economy entire, against all of the grasping human agents that constitute the sum total of a firm’s human capital.

But it might just as easily be right to say that unregulated firms produce more even after taking into account how much less they produce than they might thanks to the cupidity of their agents and the helplessness of the firm.

Regardless, we must see firms as almost always victims of their human controllers. And the wealth of those controllers as almost always funded in part not just by rents—revenues in excess of costs—but by theft in the form of underinvestment in their businesses.

It might well be that, in an optimally efficient world, every businessman would eat one meal a day and darn his own socks, for that is the real minimum that a businessman would accept in exchange for doing business.

And the profits that remain are best reinvested by firms in their own futures.


[1] Yes, the duty of care is subject to the business judgment rule, which means that courts defer to the judgment of managers regarding what actions will maximize profits, and so, in practice, even were shareholders to sue, it would be very difficult for them to win such a case. But the business judgment rule is meant only to give managers the benefit of the doubt. It does not make legal actions that are known in advance to fail to maximize profits. Indeed, in a world in which there were never any doubt regarding what course of action would maximize profits, the business judgment rule would count for nothing and a manager’s failure to take the known profit-maximizing course of action would give rise to immediate liability.


The Magic of Science

Suppose that it were discovered that knocking on wood reduces the incidence of premature death by, say, 10%. Suppose that the provenance of this statistical regularity were impeccable. That it were found not only in data gathered from life, but also in carefully constructed experiments involving millions of subjects observed over decades.

Suppose, further, that a great deal of research were done on the mechanism behind such a connection between a knock-knock-knock and longevity, and that all possible mechanisms were ruled out. Knocking on wood in a vacuum produced the same result. So too did knocking with a mechanical prosthetic rather than knuckles. Even asking someone else to knock for you did the trick.

Science would, then, be forced to conclude that the connection between knocking on wood and longevity is a fundamental law of nature, up there with gravity, albeit an eccentric law given its startling narrowness (suppose that it were only to work for humans—animals knocking on wood were not to live longer) and seeming lack of integrability with the other laws of physics.

Question: would we then be forced to conclude that magic is real, since, in effect, an element of human superstition had been found, in the light of science, to be empirically verifiable? Or would the fact that it had come to be empirically verifiable make it cease to be magic?

In other words, is our disenchantment with the modern world due to the fact that the laws that science has proven are, well, boring, and don’t involve the superpowers we once so hoped were real? Or is our disenchantment caused by science itself, by an orientation to the world that seeks always to shine a light on things instead of to respect the mystery?

Civilization Despair Meta Miscellany

The Possibilities of Hierarchy

We can represent the possibilities of hierarchy with a matrix of hierarchy. It looks like this:

Person B
Believes himself to be inferiorBelieves himself to be superior
Person ABelieves himself to be inferiorClassical Equality (each looks up to the other)Domination
Believes himself to be superiorDominationConflict (each believes himself to be better than the other)
The matrix of hierarchy.

In a world of hierarchy, each of us believes himself either to be better or worse than others, but never equal. When two people meet, there are therefore four possible relationships that can appear between them.

Two are relationships of domination, which occur when one believes himself to be better than the other and the other agrees.

One is a relationship of conflict, which occurs when each believes himself to be better than the other.

And the third is a relationship of equality, which occurs when each believes himself to be worse than the other, with the result that each seeks to follow the other and do for the other. I call this a relationship of “classical” equality because it is the only equality known before the modern period.

The matrix of hierarchy explains why domination is so often associated with hierarchical thinking: it is the most common outcome (i.e., you find it in two of the four boxes in the matrix).

It also explains why conflict is often associated with hierarchical thinking.

Finally, the matrix of hierarchy explains why romantic love so flourished in the premodern world, for is romantic love not an example of a relationship characterized by mutual feelings of admiration—of looking up at the beloved?

The new conception of equality that came into being with the modern world can be represented by a box of equality:

Person B
Believes himself to be no better or worse
Person A Believes himself to be no better or worse Modern Equality
The box of equality.

The modern conception of equality eliminates domination and conflict. It also eliminates that sweetest of all relationships, that of mutual admiration, which I have called classical equality. It eliminates love.

Question: Can we have classical equality without domination or conflict? Can we have a world in which each man looks up to every other?

That would be the best of all possible worlds.

It might require only that we change the way we look at others.

Or it might require that we change ourselves.

Civilization Meta Miscellany

Two Equalities

There is the equality in which one man looks up to another, and the other looks up to him. The first is convinced that he is inferior to the other. And the second is convinced that he is inferior to the first. The first therefore wishes to follow the second. And for the same reason the second wishes to follow the first. In the end, they follow each other. This is an equality bred of hierarchy and hierarchical thinking, of domination and obedience, of excellence and humility, of admiration and connection.

There is another kind of equality in which one man looks straight across at another and says to himself: “he is no better or worse than I.” And the other man looks at the first and says: “he is no better or worse than I.” This is an equality of isolation, mediocrity, resentment, orgeuil.

Give me the first equality. Never the second.

Meta Miscellany


Suppose that we happen to live in a universe in which magic is real, but only if everyone believes in it. It would follow that with the birth of the first scientist magic would shut down, and that scientist would be unable to find evidence of magic’s existence, other than in the accounts of those who had once experienced it first hand, which the scientist would of course attribute to delusion or hunger or psychotropic substance.

Of course, the consequences of magic would still exist in the world. If Merlin had indeed levitated that boulder and placed it over there, the boulder would still, of course, be over there. But the scientist would find other plausible explanations for the boulder’s location. The data supporting these other plausible explanations would be subject to omitted variable bias, with the omitted variable being, of course, magic. But the only way to test the influence of that variable on the boulder’s location would be to measure the historical incidence of magic. And that would be impossible because, again, in this universe as soon as even one person stops believing in magic, magic ceases there to be. There would be nothing to measure.

One might, of course, use proxy variables to try to measure historical magic—to measure historical magic by measuring its historical effects—but there would always be some other, non-magic variable that could be used to explain such effects, just as Ptolemaic geocentrism did a tolerably good job of predicting the planets’ positions in the sky despite being wrong. And, unlike magic, that variable would be measurable, and so would be more likely to convince science.

There being no way, therefore, to determine empirically whether we live in a universe in which there never was magic or in a universe in which there was magic but is none anymore, we are free to read the ancients, who tell us over and again about the interventions of the gods, as describing not delusion but a magic that really, actually was.

So, Greg Anderson, we need not merely pretend that what the ancients believed was real in order to understand them, we can also plausibly accept that the ancients were right.

Civilization Meta Miscellany World

Why Do Mechanical Explanations of the Social Deny Software?

They say that a good social theory must throw out some reality in order to have any explanatory power. Thinkers who favor mechanical explanations of the social—the people who claim that it is climate or asteroids or guns, germs, and steel that explain the rise and fall of civilizations—always seem to throw out the part of the mechanism that is the software. Why?

That is, all mechanistic explanations of the social treat people as machines—robots—that have certain operating limits. They need food and water. They need temperatures that are not too high and not too low. They cannot withstand the slash of a steel weapon. They are susceptible to disease. And so on and all true. These operating limits do constrain what the robots can do. But that is far from all.

Robots need an instruction set to run; they need, in other words, a behavior. And if the dawn of the age of artificial intelligence should be teaching us anything, it is that behavior matters a lot. There is a very big difference between a car, a car that knows to break before hitting something on the highway, and a self-driving car. There is a very big difference between a Rhoomba that moves only in straight lines and one that criss-crosses the room. It would seem to follow that the robots’ software should matter a lot in the rise and fall of civilizations. So why not make social theory by keeping the software and throwing out the robot hardware instead?

Programming in the social is thought, belief, training, worship, prejudice, emotion, philosophy, literature, letters, culture, art. It is the humanities. Humanistic explanations for things—Ruskin’s observation that you can read the decline of a civilization in its art—theorize the social in terms of the human robot’s programming. The humanities throw out the hardware.

(By programming I do not mean that we are necessarily controlled by others. In human beings we are dealing with semi-autonomous, artificially (nay, actually!) intelligent robots. So programming, for us, necessarily means self-programming at both the individual and social levels. Our programs are some peculiar function of inputs from other robots, inputs from the programs of the robots themselves (that is, we use our thought to influence ourselves), and hard-coded inputs (those determined by our genes).)

It is a peculiar thing that at the same moment that, as a technological matter, we are coming to recognize the transformative nature of artificial intelligence in relation to hardware, and indeed at the same moment that, thanks to the great financial success of companies like Google and Facebook, which derives entirely from the value of connecting businesses with individual minds, we are coming to appreciate the great difference influence over minds makes in social outcomes, we should continue to favor mechanical explanations for the social, to attribute the fall of Rome to barbarian invasions rather than decadence, or the rise of China to good policy rather than good spirit.

When we do consider the software, we tend to ignore the most important parts. We credit the power of propaganda, but not the power of religion, ideas, philosophy, love, or, indeed, art. But these too are a part of the programming, and if you judge by the things you yourself hold most dear, likely the most important part.

So do not tell me that talking won’t work. That writing will never change things. That symbolic protest is weak. Or that the only political power grows out of the barrel of a gun—unless you believe that your computer will behave the same no matter what software it runs.

Meta Miscellany World

If Mars Attacks, It Will Be Us

Maybe the best Martian policy would be to prevent anyone from colonizing Mars, rather than to colonize it first.

Let’s assume for a moment that Mars really can be developed into a self-sufficient Earth 2.0. A big if, of course.

But if true, then see: The New World.

Settlers always have high asabiya, thanks to the challenges they face, and homogeneous interests relative to those who remain in the Old World, with its historic divisions. The Old World always thinks it can control the new, otherwise it wouldn’t foolishly bankroll settlers. But the new is far, far away. It is protected by distance. It is bigger than the territory of any one mother country.

And because it is united—or will become united, because, again, regardless of the origin of the settlers, their interests are always more in common with each other than with those of their mother countries—it can exploit this bounty at scales that no one mother country can ever hope to match.

So, eventually, the new will know its own power and come to dominate the old.

It has, after all, happened before.

And even if we don’t think Mars might be viable, or we think it might be more likely to make a Cuba than a U.S.A., why risk it?

Indeed, colonizing activity by a dominant country is always a self-inflicted wound. Colonization necessarily dilutes the dominant country’s power, because any new territories dilute the power of the earth entire. If I’m two thirds of one and I add one, now I’m one third. The only reason to colonize is to preclude others from doing so; it’s a race to the bottom.

But you can also try to enforce a rule against racing.

And if you were wondering why, in the 15th century, it was the Spaniards who went off looking for new worlds, and not the great powers of the day, not the Ottomans or the Chinese, you have your answer.