Whims and Time in Economics

Here is a simple way of categorizing possible socio-economic theories into lottery and non-lottery types, and how they use time in their selection of goals.

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For any new socio-economic theory, the logical starting point is to choose the goals that the socio-economic system will try to achieve. Just like one designs a refrigerator with certain goals, or a bridge or any other man-made thing, a socio-economic system needs them as well. Without goals, the system would be built from the ground up instead of the top down. Ground-up designs serve to preserve the status quo, or to try and satisfy several competing constituencies. If the real purpose of some novel socio-economic theory is to curry favor of existing important clients or groups, ground-up is the way to go.

The ground-up approach does not run headlong into the problem that a top-down theory has: figuring out what goals to design to. There aren’t any that come from anywhere, except someone’s whims. So the choices in designing some new socio-economic theory are two-fold: find some favored group to design the system to prefer and reward more greatly, or come up with someone’s whims as to a rule or principle that the system should adhere to.

Most ground-up socio-economic systems just grow and evolve, without anyone ever trying to codify them into a set of simple principles that are coherent and serve as the driver for the entire theory. Instead, there are some slogans that are used, or perhaps exposited on, that are repeated as a sort of justification of some particular part of the mash-up that such a ground-up system usually represents. When one group grows more strong, the slogans are re-used in a different context, or a few different ones are chosen from the bag of nice-sounding slogans. These are used as justification for the modifications of the previous system.

Since these systems have functioned in most parts of the world for most of human history, why would there ever be a need for a top-down system? The difficulties in coming up with such a system are very great, as they have to take into account all manner of details of human psychology, civilizational development, technology and its changes, and more. Systems which are a mash-up of existing customs simply work because everyone knows how the system works and can follow it, and the means to modify it arise out of power of various sorts, such as political influence, financial pressure, military or police force or some other. Once some center of new power arises, the positive feedback loop starts to work and the power of the new center grows, modifying existing ways of organizing the economy and the society. Society evolves and the existing mass of economic customs evolves to match it.

Nice economic treatises can be written proclaiming that the existing system is the best of all possible systems, so that there can be a feeling of completeness and rationality among all those who care about such things. The treatises can be written for any particular system, as long as the system is more than just a hodge-podge of uncorrelated and inconsistent customs that are not stable. Having such justifications often means that some goal is chosen which will serve to justify, more or less rationally, the main contentions of the existing system. Choosing a goal for the purpose of validating some existing ground-up system does not accomplish the same as choosing a goal and then deriving from it a top-down system. They are of opposite natures.

For a novel top-down system, the most significant problem is the lack of acceptance. No matter how appealing the chosen set of goals are, nor how consistent they are implemented across the whole of society, there is little motivation on the part of those in power to make changes in more than a superficial way. The preservation of existing power is a very strong urge, and since power dictates what economic system will be used, typically something like the status quo, it would seem there is almost no point to developing a novel socio-economic system. Only if the existing power structure were near collapse, leading to a vacuum, would there be any chance that a new theory might be accepted. And even in this situation, a socio-economic theory that favors the new holders of power would be better than one which was created without reference to the existing order of things.

Putting the acceptance problem aside, one benefit of developing a socio-economic system from a clean slate is that the science of economics might actually be started, with some clear basis. This set of methodology might then be used to analyze and decompose some of the ground-up systems that have been or might be proposed. A whiff of science, as opposed to more development of details, could actually improve thinking in this area. In might even lead to a surprise, if some existing socio-economic theories prove to have a good fit with the more top-down approach, even if they have arisen as justifications of existing customs.

Where would a goal for a novel socio-economic theory come from? Anyone interested in creating such a theory could likely invent several, and they would each be no more than this: some random idea, which might be called a whim, that the mind of the individual thinker comes up with. In keeping with the previous discussion, such an idea would have to define who does the production, how is the distribution allocated, and what restrictions are there on consumption. They would not have anything to do with the details or mechanisms by which these three choices were brought into being, or what type of structures were invented to enforce or preserve them. Such structures might include ownership laws, social obligations, financial institutions, governance forms and obligations, police powers and so on. All these are details on the three main choices, and for any set of choices, there could be multiple ways of having written records, hierarchical political structures, tax laws, or whatever. The details are simply the details, and bothering to emphasize them just obscures the fundamentals of the theory, which are those three choices.

The selections of these three choices might be graduated on simplicity, with the simplest being that everybody has to do some fixed amount of work, with some measure as to what constitutes work; everybody gets an equal share of the production, and consumption is limited by the need to save x percent of the production whenever there is a surplus over some fixed threshold. The theory has to define the two ‘everybodies’ in these statements, and perhaps has to figure out how to vary x year-by-year. The fixed amount of work has to be defined as well, even after some equivalence has been created between different types of work. The total amount of production scales with this fixed amount selection, but pushing it too high would mean that there was the possibility of exhaustion of individuals. Most likely there would have to be some rules on the tradeoff between leisure time or non-productive time in general, and time devoted to production.

Another extremely simple theory has production being doled out by a lottery of some structure, and distribution given by exactly the same lottery, with either one draw for both or separate draws for production and distribution. There are no end to the lottery ideas that can be used. They could be based on attributes of the individual, such as some genetic traits or some learned traits, or on the parentage of the individual, or on the geographic location of the individual, or pure chance. A combination of these effects could be used.

These two classes of theories, the non-lottery ones and the lottery ones, cover a wide range of possibilities. There is no justification for choosing any one over any other, in the top-down point of view. They are all whims, in other words, just the selection of some individual designer of the theory, based in fact on his experience and education. The universe does not tell us what to do. The individual designer could delegate his choices to some historical sources, of which there are many, but this simply means that they are either some older whims of some person, or they were the result, covert possibly, of a need to justify the advantages of some particular power-holder or power-holder-to-be at some past era.

Time comes in at this point through the back door. A previous socio-economic system with a justification, or some previous whims of some possibly very convincing authors, might be used by some designer of a novel socio-economic theory to derive his new system. But there is another way that time should enter. Almost all theories, certainly the ones which are based on justifying some status quo, but also ones which are based on some individual system designer’s whims, are based on current time. They talk about selections based on what exists now. One alternative is to choose a goal with a long-term perspective, and then try to derive the rules for production, distribution and consumption from that. A long-term perspective might state that the chosen rules should be selected to maximize the length of time existing resources will last, or maximize the growth rate of technology over the next long duration, or support the improvement of the genetic stock of mankind, or preserve some ecological properties over some long period, or many others. Mankind has not devoted much theorization to long-term perspectives, in fact, almost none. Maybe this type of socio-economic theory would provide some insights that the short-term ones do not.

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