It has been almost a month since it rained, so it feels like the Pacific Northwest is going through a serious drought. Quite sure the Seattle natives are reminded of that arid 2017 summer — the region endured two full months without rain. To make matters worse, last month had a heat wave weekend. I know exactly where I was when Seattle broke temperature records – on a motorcycle, right outside the city, on the scorching I5 tarmac. Can confirm it takes at least 2 days to recover from moderate dehydration.
Less rain also translates to more riding on the weekends. It’s sort of comforting to know we have that choice to work, make a living, and invest our spare time as we wish. Even if it’s something extreme like motorcycling at 105° F. The investment in motorcycling is my choice while also working within the reality of various personal constraints. Drawing an extreme parallel, the private sector space race can also be considered an adventure driven by entrepreneurial choices. Both belong to the same class of problem, differing only in degree. Enduring the 105°F I-5 furnace or launching ourselves to space are both choices that divert valuable resources from alternate uses.
A critique of prioritization in most cases will defy the first principles of the relatively successful market system we have. In fact, a comprehension of the market system will make us realize it’s a machine to discover and reconcile emergent priorities. That goal is necessary because prioritization is unknown. Costs are a critical input to prioritization; they are unknown as well. Hence, imposing unaligned external goals will disrupt internal consistency.
To share a larger perspective — this choice to work and earn a living, at the standards we see in the Western world, is a luxury and unprecedented in human history. Even now in several parts of the world, an individual does not have that option. But unlike the past, material poverty shouldn’t be immediately considered the default state. Even when it’s a consequence of various historical accidents stemming from pre-market social orders of strife and plunder, attempts can still be made to address it through institutional changes.
Eventually, every choice can be voluntary or involuntary. Someone remaining in poverty for personal or religious reasons is voluntary. Some belief systems just promote simple living. The unfortunate involuntary state is the one that needs explanation – situations in which the individuals are explicitly constrained. They manifest in several forms, but all their incarnations come down to restrictions on the use of life and property. Systems built on such restrictions tend to inhibit adaptations that lead to wealth creation. This is discovered through trial-and-error hindsight, yet it provides a coherent explanation.
Institutional frameworks that allowed prosperity to emerge were never engineered for this goal. Instead, they were meant to simply protect property and life. But that simple goal introduced a motivational strand encouraging voluntary exchanges. Now transactions create mutual value; it is no longer a life of zero-sum or negative-sum exchanges anymore. The goal was the protection of the universal right to property, but the unintended consequence was prosperity. General system architecture and its internal dynamics are the reasons for this outcome.
Architecture determines the arrangement of various building blocks in the system, and this in turn shapes information flows. Rapid adaptation depends on efficient flows – just like how signal integrity between sensory neurons and the spinal cord determines our reflex time. At the most granular level, if sensory neurons weren’t built for efficient response to stimuli, then reflexes wouldn’t function as expected. Generalizing this — if all the building blocks do not play their role efficiently, then the organism suffers.
Individuals are the building blocks in a social order, and freedom with property rights provides the incentives to voluntarily respond to external needs. Rewarding ownership is the ideal approach to incentivizing the use of resources to solve a problem. This includes cognitive resources as well. That means, in the long term, self-interest tends to maximize employment of individual effort. Also, based on the general goals of a social order, psychological implications of ownership always beat something like a top-down command-style design. To emphasize, when the general goal is internal coordination of building blocks, a system will need multidirectional information flows. This information-based order requires individuals to be motivated to efficiently process and respond to external stimuli.
The need for multidirectional flows and why prosperity cannot be engineered are related. Specifications for general prosperity, or the specs of various available building blocks, aren’t known to any one person or group. In other words, no one knows what everyone wants, nor the optimal way to achieve it. So, this demands a trial-and-error discovery process. The system is expected to adapt to emerging dispersed needs by reorganizing itself in optimal ways.
A simplified view of this multidirectional flow would be top-down information reconciled with bottom-up data — top-down provides dispersed consumer needs, and bottom-up signals the available building blocks and possible arrangements of those blocks. Friedrich Hayek famously said, “It is a problem of the utilization of knowledge which is not given to anyone in its totality.” For example, consider a top-down need for a motorcycle spare part; the bottom-up information to be discovered is the economically viable fabrication model for such a part.
Most things can be engineered in several different ways, so entrepreneurial motivations are expected to discover this information and align it with top-down demands. If a spare part is not viable within the price constraints, then the top-down spec will need to be revisited. It’s a constantly running process of adjustment to the best-known means and arrangements possible. Discovering this information is expensive, and property ownership and profit are integral motivational factors for keeping this process alive. To summarize, the system exists to reconcile dispersed needs with dispersed options to satisfy those needs. A continuous multidirectional information flow is needed to discover this alignment across time.
This means both consumers and entrepreneurs have the autonomy to make choices. Facing the consequences of their own choices, both good and bad, is the price everyone pays. This also means the system can generate decisions that may not align with the majority, because that, on its own, is not the criterion for the choice calculus involved.
In fact, both consumers and entrepreneurs can make unpopular choices. For example, the majority of consumers may not enjoy motorcycling, but that does not stop entrepreneurs from selling to the minority. The same applies to space exploration – common pushbacks include: Why go to space when we don’t have universal healthcare, or we still have hunger, or when there isn’t world peace yet. But if everything were decided through popularity votes, Nikola Tesla would have found it difficult to invent and establish AC current, Benz would have found it difficult to design automobiles, and, for that matter, anyone attempting something not perceived as valuable by 50% of the population would have found it difficult.
Consumer choices are typically attributed to personal decisions, but entrepreneurial choices can sometimes roil the masses. An effective critique of entrepreneurs would analyze the incentives that caused this unacceptable choice. For example, a subsidy for space exploration or a tax write-off for space travel R&D are possible variables that were factored into this private sector space race. Such an analysis is more scientific – it accounts for the rules and constraints of the system, provides visibility into actual trade-offs, and, more importantly, it might just improve consistency of the framework. Eventually, preservation of this system also demands cultural support and a compatible institutional order.
Republished at ridersmodel.com
You must be logged in to post a comment.