Are incentives more asymmetrical than they used to be?

by on March 25, 2008 at 6:34 am in Economics | Permalink

I was thinking of writing a science fiction story.  In this world human capital is incredibly valuable.  Even if you lose all your wealth you can earn back lots very quickly, at least if you are talented and well-educated.  In fact, even if you stay poor, wealthy friends or a spouse will take care of you and you can have fun watching cable TV or playing Second Life.  The only way to get above this baseline level of happiness is to succeed at "winning" and gaining relative status among your peers by superior earnings.

The level of risk-taking is very high and capitalist enterprise starts to collapse.  (Credit markets disappeared in 2081.)  Every manager plays metaphorical or perhaps even literal roulette with the money of the shareholders.  The move toward unlimited liability for corporations only postpones the dissolution of cooperation. 

Production resumes only when a) managers precommit to costly drug addictions, so that they again fear pecuniary losses, and b) shareholders find altruistic managers and also initiate charitable contributions to India.  They threaten to cut off those contributions if managers perform poorly.

Managers are addicts and blackmailable altruists.  The Indian poor flourish.  Most Americans remain unemployed.  At some point the world becomes poor enough to sustain cooperation once again.

John Mark Rozendaal March 25, 2008 at 7:38 am

“At some point the world becomes poor enough to sustain cooperation once again.”

Is that the fiction part?

confused March 25, 2008 at 8:47 am

Can someone translate this?

Is this right: Managers act too recklessly. Americans are overpaid and lazy. Offshoring is the only reasonable solution. What is the altruism and charitable contributions referring to?

Person March 25, 2008 at 9:36 am

Um, didn’t you just describe a world without private property?

-Current productivity is more important than past earnings? Check!
-Cooperative networks of friends and family only hedge against disaster? Check!
-Risk-taking is high? Check!
-Long-term employment relationships and equity financing are unsustainable without bizarre workarounds (i.e. drugs)? Check!
-People with current earning power have highest status? Check!
-Impossible to limit liability of any organization? Check!

Let’s not reinvent the wheel, Tyler. (And I’m not sure how this world comes up with cable TV or Second Life…)

Anonymous March 25, 2008 at 9:47 am

This book idea reminds me of the ‘Beggars in Spain’ series by Nancy Kress. Not the same idea, but also tinkered with the demand for labor, and new stratifications emerging in a modern society.

josh March 25, 2008 at 9:58 am

no mention of shareholders?

Mark March 25, 2008 at 10:07 am

Tyler, I highly recommend Distraction by Bruce Sterling. A lot of the thoughts you have are explored by him.

http://www.amazon.com/Distraction-Bruce-Sterling/dp/0553576399/ref=pd_bbs_3?ie=UTF8&s=books&qid=1206453955&sr=8-3

jorod March 25, 2008 at 12:29 pm

You left out government greed and power. Try reading “Dune.”

bbartlog March 25, 2008 at 12:42 pm

The level of risk-taking is very high and capitalist enterprise starts to collapse.

This assumption is where you lost me. I understand how you got to this point: extrapolating the behavior of some of today’s investment managers, what happens when there is no fear of losing? But in order for investment [capitalist enterprise] to collapse, we have to assume either that
– no one anywhere fears losing any more (psychologically implausible, in my opinion)
– the fearless ones are able to successfully masquerade

Neither case seems to make much sense; barring seamless deception on the part of excessive risktakers, we just end up with capital flowing to those who still have (some) fear of loss.

Mason March 25, 2008 at 2:15 pm

While I applaud your efforts, I think your going in the wrong direction. Why write about the societies collapse at the hands of capitalism? Seems very unlikely, I’d much prefer you to team up with Hanson to write about a bodiless society which uses pleasurable electric shocks as a medium of exchange, which I actually think is more likely than the breakdown of capitalism.

Anonymous March 25, 2008 at 4:58 pm

A billion people on this planet live on less than a dollar a day. In their perception, the West as it exists today is already very close to your hypothetical science fiction world: a baseline level of financial welfare, enough food so that even poor people can be obese, clean drinking water instantly available on demand, etc. Undoubtedly, the “bottom billion” imagine that if they could live in our world they would be happy forevermore.

We who actually live in the West would not agree. Human psychology is such that we will always worry about something and find challenges and preoccupations to busy ourselves with. The more choices and opportunities you have, the more choices you need to make, which can be very fretful. And so it will be in 2081 also.

To take one example: if you consider clothing, we are already living in your 2081, so to speak. If you look at photographs of refugees from only a few decades ago (say, from the Bangladesh war of independence), they were quite literally dressed in rags or Mahatma Gandhi loincloths. Today even the poorest people on Earth generally dress in the same T-shirts and jeans as we do in the West. Global “baseline clothing happiness” has already been achieved, thanks to technology and China in particular. And yet the fashion industry thrives and wardrobe-related preoccupations and aspirations among consumers is stronger than ever, and stores even exist to sell T-shirts that cost a few hundred dollars apiece to the idle rich and celebrities.

So it will be with all our other material and psychological needs, in 2081 or whenever. It’s just human nature. Well, unless we genetically engineer ourselves to literally alter human nature.

Motor City Madman March 25, 2008 at 7:38 pm

Really you’re describing the movie “Rollerball.” Better check with your lawyers before the Art Buchwald lawsuits begin.

A world run by a few corporations with entertainment as the daily preoccupation. Burning pine trees with flamethrowers……we’re almost there.

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judy May 14, 2009 at 3:03 am

It is enlightening!

anna May 14, 2009 at 3:04 am

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