There are plenty of stories you can tell that are pretty compelling about this.  For example there are towns in China today that make only buttons, and other towns that make only copies of classic oil paintings, etc. etc.    Everybody knows that Silicon Valley has something in the water that means that only there can you do high-tech.

But recently I’ve gotten to wondering, maybe this isn’t true.  Cities, as a economic model, lost much of their competitive advantage with the introduction of the phone (which undermined

the manager’s need to be on site), electricity (which undermined the requirement for power/coal to be delivered via flat water), and modern transportation (which undermined the requirement to walk to work).   Once those all set in the city centers dissipated.  And thus, the golden age of American cities ended.  Is that process over?  I think maybe not – the way that the internet has enabled distributed work is a good example of the ongoing process.

How might we measure this?  Apparently Paul Krugman suggested some time ago the seemingly obvious idea that you just compare “the sum of the absolute differences in industry shares of employment between the two regions.”  (page 12)  And in 1998 this paper was published with this chart that shows the historical trends in regional specialization in the US.   Notice first the bottom line – retail trade; all regions have some retailing so that isn’t concentrated.   Then notice the top one; apparently the least urban activity is the one that is trending toward increased regional specialization.  I certainly didn’t expect that.

What leaps out at me here is the way the rise and fall of regional specialization in manufacturing appears to be so correlated with the gold-age of American cities.

I think I was right at the time.  Wrong about my choice of cities; San Francisco beat Boston – a lot.  I remain unconvinced that we know exactly why though.   These days I still think it is good advice to the young, go someplace where there is an existing network of people doing what your interested in.  But, that said, I think it’s less critical than it used to be.   And, I’m totally confused about that agriculture trend line.

So we now know that income inequality has high social costs, or to say it in a more technical way inequality is negatively correlated with social welfare.  I don’t know that that would surprise most people.    A society where the lower classes are more distant from the upper classes is going to have greater social stress – at least I don’t see that as surprising.

But what else is income inequality correlated with?    There is a very scary possibility:  That inequality drives greater economic growth.  Not hard to make up an insta-theory for that: e.g. that the social gradient drives people to strive, and this drives significant economic growth.

That would be really horrific.   A Hobson’ choice: pick one economic growth v.s. social well being.  Societies that grow faster carry their social norms carried along with them.  They become the standard.

Which is why it’s a very important question.  And you’d think there would be libraries full of research on this question.  There is not.  Pick your insta-theory for why that is.   As far as I can tell the data seems to suggest that growth and inequality are largely related.  But, it is very frustrating not to be sure.

For years now I’ve been convinced that where is something curiously wrong with the presumption that “the books balance.”  One way I talk about that is to ask: “Wouldyou rather die with people owing you, or with you owing them?”  Graeber gets into this in the interview; arguing that exchange exists against a deep background of existing relationships; that the entire myth about the market arises from a simplifying assumption of early economists where they start from a surely impossible initial state where the participants have no existing relationships; i.e. the books begin balanced and we continuously strive to get back into that lonely atomized state.

Graeber outlines a sharply different story about money from the usual just-so-storywe have all been told.   The fairy tale he is dismisses goes like so: barter comes first with individuals exchanging A for B.Over time traders recognize that some commodities are money like – their value is durable, they store easily, their value is easy to decern – and these commoditiesthen become units of exchange.  Later tokens appear that represent these commodities,and at that point it’s off to the races.   Graeber highlights a problem with this story, e.g. that anthropologists haven’t found any examples of this in practice.  I am surely exaggerating, but I come away wondering if barter actually exists.  He says the only place it appears to happen is when an existing currency regime collapses.

Graeber says nope.  He argues, and I think this is exactly right, that what happensfirst is that exchange takes place in the form of “I’ll give you A, and you’ll owe me.”   The “owe me” clause is part of the social sphere.  It’s in the set of books that balance only very roughly.  I’d argue the entire idea of such books coming into balance is fairly toxic to the social sphere.

In this telling the emergence of money is largely as a means to keep a measure of the extent of outstanding debt.  And curiously one place that debt appears is betweeninstitutions (clubs) and thier members – in that context the club members draw uponthe benefits of the club and in turn they accumulate a debt to that club.  In time,as the institution becomes more formal and it’s members more alienated from it themanagement of this debt becomes more formalized.  The club then introduces membershipfees, or taxes.  Money becomes that which the King will accept to pay your taxes.

It’s worth reading the entire interview, because money (reified obligation) has a design flaw; the debt trap.  And there are complex currents about it’s interplay with a societies presumptions about what is moral; and thus a societies morality.  He has fascinating things to say about slavery; debt forgiven, cycles between money as commodity (for example gold) and money as virtual, and on and on.  And possibly most importantly the balance a society based on virtual money most find between protections for debtors v.s. creditors.

Theorizing about money is fun, but try not to forget; studies have shown that 97.3% of those who do it are nuts.

Speaking of clubs … I’m now 18th in line at the public library to borrow their single copy of Graeber’s book: Debt: The First 5,000 Years.

I am not interested in the article, but this factoid: it says that American households spend on average $369 a month on gas.  If we presume that gas cost 4$ a gallon then we are buying 92.25 gallons of gas a month.  If we assume 20 miles to the gallon we are driving 1,845 miles a month.  That’s around 61.5 miles a day.  About an hour a day in the household’s cars.  By the way, that hour is commuting to work.

I did a posting a few years ago about car costs.  At the time time gas was 27% of the over all expense, and for example, depreciation was 25%.  At that time gas was $2.90 a gallon.

The article quotes an expert saying that there isn’t much you can do to improve your milage.  Gosh, I suspect that quote pissed off the expert; since he surely knows there is plenty you can do: air in the tires, combine trips, drive slowly and smoothly.

(fyi – the AP pretty far to the right)

The second thing I notice is that two of the curves (taxes and finance) are sufficiently constant as to be uninteresting.  The only signal in this data series is just  the business cycle – when things are hot the problem is finding good people; when they are lousy the problem is sales.

Sadly this is a horribly bleak chart.  It shows that the recession is just awful.  It’s the worse in 25 years, at least.   It also shows who tightly coupled demand for goods is to demand for labor.  Of course it’s not surprising that if you can’t sell your don’t worry much about finding good labor.  One way to look at that red line is that it hints at what percentage of firms are hiring.

If we don’t find a way to crank up demand, e.g. sales, we are in for a long a miserable decade.

BP has also cut corners at the expense of its own workers. In 2005, 15 workers were killed and 170 injured after a tower filled with gasoline exploded at a BP refinery in Texas. Investigators found that the company had flouted its own safety procedures and illegally shut off a warning system before the blast. An internal cost-benefit analysis conducted by BP – explicitly based on the children’s tale The Three Little Pigs – revealed that the oil giant had considered making buildings at the refinery blast-resistant to protect its workers (the pigs) from an explosion (the wolf). BP knew lives were on the line: “If the wolf blows down the house, the piggy is gobbled.” But the company determined it would be cheaper to simply pay off the families of dead pigs.

Billions of years ago, in a course on Biotechnology, I got a A+ for writing a long paper outlining a cost benefit analysis for some research on kidney machines.  I’d written the entire paper in a similar sardonic tongue in cheek tone and I was shocked that the instructor seemed to be oblivious to that.  It was, I thought at the time, the most interesting lesson I took from the course.

I must look for a chance to use the The Three Little Pigs as design framework!

Here’s another fun example of an externality.  Apparently landscape designers have a preference for male plants over female.   The female plants drop more litter, i.e. seed pods and fruit.  Somebody has to sweep up the mess, the clients complain, the landscape designers respond.  While the male plants just pump out vast clouds of pollen.   Which triggers more allergic reactions from the general public.  But the general public isn’t paying the landscape designers, now are they?

I guess there are alternative schemes to address this.

• Ignore it.
• Follow well worn path laid out by the tobacco industry, fast food, and anti-enviromental forces; and mount a disinformation campaign.  (Hint: Be sure to mention freedom, choice and unintended consequences.)
• Campaign to change the behavior of landscaping profession.
• Regulation
• Tax Pollen
• Pollen cap and trade.

I’m totally in love with the idea of pollen cap and trade, and I look forward to the fraudulent pollen credit story.

hat tip: Heebie-Geebie, and see also Bee Hive.

I am reminded of the observation in “Control of Nature” about LA canyon real estate.  The catastrophic floods are rare compared to how often the property turns over so that residents tend to have no memory of what’s in store.  People still remember the 70′s high inflation.  But here’s a chart showing the incidence of deflation.

Here are three things, picked somewhat at random, from the book (so far) I found interesting.

When nations default on their international debt creditors have few effective responses.  In passing them mention that American gun boat diplomacy visa vie South America arose out efforts to collect after Venezuela defaulted.  That’s not really what I was taught in school about the Monroe Doctrine.  There is an example of a nation losing it’s sovereignty upon defaulting on their international debt.  I bet you didn’t know the Newfoundland was forced to merge with Canada by the Brits during the depression.  But it’s so rare as to be the exception that proves the rule.

There is a nice turn of phrase “odious debt” used to loosely label debt that doesn’t deserve to be repaid.  A simple example of odious debt would be that your country is taken over by a vile dictator who then engages in all kinds of vile behavior; meanwhile lenders in other countries continue loaning him lots of money; which he uses to further torture the population.  Finally the citizens manage to eject him.  That debt is odious and the new government decides to default on it.   Of course there are other less colorful scenarios with less obvious outcomes familiar to anybody who’s observed bankers in the absence of consumer protections.

Finally they mention how in China and India the governments regulate things so that people have very limited choices when it comes to savings.  They call this financial oppression; a turn of phrase I see has having great potential in our polarized political discourse.  The governments also regulate what the banks can do with the deposits.   People love to spin fanciful ideas about alternatives to the banking system, and I suspect you could find an interesting set of examples in such countries.  For example they mention that savers turn to gold and jewelry as an alternative.

Businesses adapt the ratio between guard labor v.s. productive labor. That ratio varies across firms within industries, from one industry to another, and inside of firms from on department to another. Presumably there is a great deal of peering over the walls. A lot of monkey see monkey do as people search for a different balance. For example if the neighbor organization appears more successful and they don’t spend time on daily progress reporting and your organization does then you might be tempted to jigger things; reducing the ratio of guard to productive labor.

The work done by labor shifts. It can shift into automation or codified processes and procedures. If the neighbor is using an elegant status board your organization might be tempted try that out. In effect shifting guard labor into automation. Processes and procedures are a capital investment. How you depreciate and retire them feeds directly into organizational agility. If a neighboring organization appears to be successful by setting aside their rule book and replacing it with a charismatic manager then you might try that. In effect shifting automation into guard labor.

If you cast this in an exaggerated light you’ll notice plenty of opportunity for polarization. For example guard labor may fall into the bad habit of talking up how lazy the productive labor is; not because they dislike the productive labor but because it helps to justify their role (talking their book). Same thing happens for al the pairs; e.g. X v.s. automation and other roles like customers and suppliers. Most organization players flirt with the guilty pleasure kind of such exaggerated behaviors. It’s worth noting that there is plenty of opportunity for similar polarizing behaviors to be found the variability across departments, between firms, etc.

Automation (or processed and procedures) means that productive labor can be highly guarded even in the absence of guard labor. The assembly line worker’s role is extremely guarded, by the machines that surround him. In that scenario the guard labor ratio is low, with say only one supervisor for a a dozen production workers. So how guarded work is somewhat independent of how much guard labor is involved. Mechanical turk workers might be a example of an outlier in that space – highly guarded work with very minimal guard labor.

It is a challenge to label the axis for how guarded labor is. One extreme might be labeled slavery, bound labor. At the other end we might expect to find labor that is enjoying very high values of achieving the people’s core concerns (appreciation, autonomy, affiliation, …).  There are plenty of things that can bind labor: salary; stock options; roots in the firm or locality; specialized skills; lack of other options. In the Americas importing slaves from Africa was more effective v.s. enslaving the natives, I presume because natives had the option of running away.

Like all costs the cost of guarding can internal or externally born. One point the paper makes is that unemployment acts as a kind of systemic guard. Obviously unemployment insurance acts to temper that effect. If incidences of unemployment tend to be short in duration, that also tempers the effect. The paper suggests that Italy, with high unemployment and low guard labor ratio, might be an example of an economy where the cost of guarding has been externalized. In this mindset taxing firms that tend to have high labor turn over is a Pigovian or pollution tax and helps to encourage the guarding to move in house where it will be on the books.

This posting about slavery is interesting to mix up with the guard labor meme. It’s all a bit rough but there are two rolls of the economic dice mentioned there that encourage the rise of slavery. Let’s decide that what we mean by slavery is state sanctioned and enforced slavery. Not that the other cases aren’t interesting.

The first scenario is the case where owners have land, but labor is scarce. The scarcity of labor means that the cost of owning slaves is lower than the cost of paying them a salary on the open labor market.

The second scenario is high demand for some good. I don’t entirely understand this suggestion; but i find it plausible. If I replace high demand with high volume it begins to make sense. If some labor intensive good is produced at very high volume an large industry will emerge and scaling effects will kick in. That will trigger the search for both the balance of guard to productive labor, the codification of process. In time the nature of the productive labor will become increasingly guarded. The guard labor ratio will rise – the absence of either automation, or technological schemes for assuring the productive labor adheres to the processes. In the extreme case that high ratio will lead to introducing slavery.

Of course you’d also need to be able to implement the bondage. So if the labor can run away, as in the early American colonies, it maybe a lot harder – even with the help of the state and cultural sanction and enforcement. Labor can also run away if you have a diverse economy; so it would seem to me that both these scenarios are much more likely and possibly even require homogeneity – a company town.

The first scenario suggest that in any case where labor becomes scarce the incidence of binding devices will rise. So when labor is scarce during the second world war and wages are capped employers introduce health insurance, which has turned out to be a very effective binding device. It is exaggerated to suggest most of these are equivalent to slavery, but it’s interesting to float the analogy.