Wednesday, October 22, 2008

Responding to Crisis

I just read this article called Money and the Crisis of Civilization. It argues that the cause of our current global financial turmoil isn't merely “unregulated casino-style financial manipulation.” Rather, our problems arise “from the very nature of money and property in the world today, and it will persist and continue to intensify until money itself is transformed.” It calls for an entirely new world system, in which we “do not drive the conversion of all that is good, true, and beautiful into money.” (Whose opinion of goodness and beauty is he talking about? The author leaves that up in the air. The virtue of a free market is that we can make such decisions for ourselves.)

Lots of my neighbors in Berkeley react similarly, in claiming that the lesson of the crisis is that we need a fundamental overhaul of our economic/political system: profoundly more government control, and less freedom in the marketplace. Supporters of any alternative system can always use bad times this way: (1) things suck now, (2) I have an idea for changing things, (3) therefore, we should follow my idea.

There’s some merit to this “logic.” When we’re born into this world, blank of experience, our brains need to follow very simple algorithms in order to survive. I can see why DNA, in Her wisdom, would program us with, “Whenever you’re in pain, change what you’re doing. Try an alternative – any alternative – and see if it makes the pain go away.”

That’s not bad for a simplistic strategy. But like many of our inborn simplistic strategies, it’s sub-optimal for intelligent adults.

Some say that since a free-market system results in periods of suffering, and is ultimately unsustainable, we should therefore adopt a more Socialist path. This conclusion might be correct. Maybe more Socialist laws would reduce suffering and lengthen humanity’s survival. No one can predict future effects for certain, and such speculation is beyond my pay grade.

My point is that in deciding whether to make changes, we’ve got to put aside preconceptions, and examine both the benefits and dangers of each option. It’s not sufficient to say, “We need to ditch capitalism because it’s painful and unsustainable.” Buddha said that everything is transitory, and wanting anything results in suffering. If this is indeed the nature of reality and human life, then it’s a mistake to reject a system merely because it’s painful and impermanent.

If Buddha is correct, then utopia isn’t an option. Those advocating an alternate system need to go further than pointing to the pain in the current system. They must demonstrate that their particular alternative is likely to produce less suffering.

(“Man’s desires are infinite, but the means necessary for satisfying these desires are limited.” This is the opening sentence of a graduate-level Economics text… but it could just as easily be Buddha explaining the universality of suffering.)

If you put a rat in a cage and shock him randomly, he’ll do all sorts of “superstitious” behavior – running in circles, jumping up and down, doing somersaults. It’s his attempt to improve the situation by doing anything different. And if by pure chance the shocks stop when he does a somersault, he’ll do more and more of them, whether or not there’s a real cause and effect. Human beings can act the same superstitious way.

If I follow you around every day, eventually I may see you make a major mistake. At that point, I can say, “You’re such an idiot! You tried to live your own life, and look at the trouble that caused. If you’d just put me in control of your life, I’d do it much better, and you’d be saved from screw-ups like this.”

But the fact that you made a mistake, and I claim in retrospect that I would have avoided it… doesn’t mean that my way will really work better in practice. It may sometimes be true that you really would have done better with me controlling your life… but is that sufficient justification? Maybe freedom – even the freedom to make stupid choices – has an intrinsic value, and shouldn’t be so quickly abandoned in times of trouble.

We could, after all, reject Democracy because of all the flaws we find in democratic countries. “Democracy is the worst form of government except all the others that have been tried.” Isn’t it possible that the same is true of free markets? I could complain about how terrible it is that my job was outsourced, but it’d be even worse to deny the job to the guy in Indian who now does it… and needs the money more desperately than I.

As usual, this is best understood by a gambling analogy. In blackjack, you sometimes find yourself holding a 16 when the dealer shows a 7. You’ll notice over time that when you hit in this situation, you most often lose (since 8 out of 13 card ranks – 6 through King – bust you). Based on our inborn, simplistic logic, we may implicitly conclude, “Hitting here keeps failing, so I need to switch strategies and stand.”

But standing here is a huge error. The key point is that holding 16 is a bad situation, in which you’ll most often lose whatever you do. The correct move is to hit, since any different choice would make matters even worse. The only way to reach the right decision is through careful analysis. (Tangentially… if the dealer were showing a 10 instead of a 7, then standing is only a tiny error. That’s because for those 5/13ths of the time that you don’t bust, you’ll most often win the hand when the dealer shows a 7. When he holds a 10, you’ll often lose in all cases, so your decision doesn’t matter.)

People (including me) don’t like that fact that we get led astray when we follow the feelings and intuition we automatically gain through experience. It’s so much easier and more satisfying to believe that our intuition is Truth, and we can dispense with reasoned analysis. In some life situations (e.g., deciding which friends you can trust), intuition may indeed be our best guide. But not always.

When I dealt blackjack in Vegas, I’d advise players to follow the computer-generated basic strategy available in many books. “There are so many things in life that you can’t understand rationally,” I’d tell them. “But with blackjack, you can. Forget about what feels right, and follow the book.” Sometimes they’d listen, but more often not.


Steven Sashen said...

Former European Central Banker (and inventor of the Euro) Bernard Lietaer argues that the problem isn't money itself, but the underlying "design" of the money, which has lead, inevitably, to this moment (he's been warning this would happen for the last 10+ years).

In other words, most current money is:

a) Controlled by a central, national bank
b) Created by incurring debt to that bank, typically by promising land or other hard resources
c) Requires competition, since you need to get the interest payments for that debt by getting money from others (who already have money which was created from debt)
d) Engenders hoarding and short-term thinking since you can collect interest by having more money now (with the hope that it will hold you over in the future).

There have been other currency designs in the past which led to dramatically different behaviors with money.

For example, in a demurrage currency, instead of collecting interest when you store money, you're charged a storage fee... the more you have and the longer you hold it, the more you lose!

With currencies like that, people tend to try to get RID of the money, by buying things that will last them a long time (so they won't have to run the risk of collecting/losing cash).

The evidence of societies using those currencies (not necessarily exclusively) still exist -- pyramids, great walls, aquaducts, stone houses and thousand year old farms, etc.

Bernard has been working with national governments to make changes in the currency system... interestingly, every country that has ADMITTED to have financial trouble has been on board with his ideas. Not surprisingly, the only one that has given him a fight (and continues to!) is the U.S.

Stuart said...

Many thanks for this info, Steven. After reading your comment, I've been Googling Lietaer and checking out his ideas. The most interesting to me is the reminder that we don't really know what money is. "The last beings to know about water are the fish."

Lietaer says here, "I believe that greed and competition are not a result of immutable human temperament; I have come to the conclusion that greed and fear of scarcity are in fact being continuously created and amplified as a direct result of the kind of money we are using. For example, we can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all."

But is it really true that we can produce enough to satisfy everyone? And even when our desire for food is satisfied, don't we just create more varied desires, resulting in continued scarcity and thus suffering?

As suggested by the economics textbook quote in my posting... don't our desires arises endlessly, while the objects of desire are finite... giving rise to "scarcity" at the most fundamental level?

In other words... I always look at greed/desire as an issue we each must deal with through introspection, examining our own thinking. It's hard for me to imagine that the problem lies in the currency or monetary system, rather than in our psychology.

To quote another great mind, "... But that's just my opinion; I could be wrong." Lietaer designed the Euro, while I... uhh... can program a VCR. I may be sorely lacking in understanding Lietaer's ideas.

My belief that I tried to express in the posting is this: to get to the core of suffering, we need to work with our personal desires. Placing the "blame" on a financial system MAY sometimes be a distraction from this inner work.

But as long as we don't ignore introspection, maybe we can also beneficially consider the type of systemic changes Lietaer speaks of. I don't know, maybe it's OK that some of us meditate to find clarity in our own thinking, why others strive to change the world externally.

Stuart said...

Oops. The last sentence of my comment above should end, "maybe it's OK that some of us meditate to find clarity in our own thinking, while others strive to change the world externally."

Steven Sashen said...

Whether the ability to have our fundamental desires met would lead to satisfaction and eliminate competition and greed is an interesting concept to ponder.

At the very least, though, the design of the currency system, through which we normally pursue our desires, has a significant "top-down" influence on our thoughts and behavior.

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