Posts Tagged ‘co-created’

We don’t know squat about economics

Monday, July 30th, 2012


We think of weathermen and stockbrokers as the two “often in error, but never in doubt” professions. Let me nominate a third: economists.

If stimulus or austerity policies worked, we’d know by now.  If Friedman and Keynes were right, our governments would long have adopted their policies, and our economies would be roaring like Formula 1 cars in the Monaco grand prix. The predictability of tax cuts or stimulus spending on economic growth has the reliability of Paul the Octopus forecasting soccer game outcomes: sometimes it works, and most of the time it doesn’t. Yet politicians everywhere hang on to these disproven theories as economic gospel.

What’s wrong with economics? To paraphrase Mitt Romney in one of his awkward statements, economics is people. Instead, we think economics is policies. From government to universities, we teach economics as a massively aggregated database from which we extract insights, then policies, at the level of a state or a country. This leads to lame assertions about interest rates, monetary mass, jobs, trade deficit, and vague concepts of rational expectations reputedly anticipating economic behaviors. If we understood the true causes and effects in the economic system, our Presidents would not be sweating the job numbers every month: they would tell us beforehand what to expect.

Do you wake up in the morning thinking about interest rates, inflation and trade deficit? Do you actually decide to buy a car, a house, or go grocery shopping on the basis of interest rate and inflation? Do you look at your Turbotax statement to decide whether the rise in the marginal tax rate just passed by Congress will authorize you to go to Wholefoods and buy the fresh organic tomatoes that day, instead of going to the regular grocery store where the tomatoes are cheaper? Of course not. Yet this is the micro-level at which the economy works. Unless we can begin to comprehend decisions at this individual level, we have nothing of value.

If I were an economist, I’d start by diving deep into understanding how five or ten of my neighbors experience the economy. I’d try to build a model of their income statements and their balance sheet, and figure out how they decide to patronize five or ten local businesses (say, restaurants, grocery store, day care, etc.), or why they decide to save and for what. I’d try to understand the economics of the five or ten local businesses my neighbors buy from, why these small businesses decide to expand and hire, or why they scale or shut down. If there were one or two big businesses in my local area (corporate headquarters, big hospitals, etc.), I’d try to understand how the success of those large businesses contributes to the local economy through local taxes and jobs. I’d then try to model how the local township or municipality benefits from all this, and what impact local people and businesses have on the finances of my town (school, public funds, etc.). If we could just model this microcosm of economic interactions, we’d have data on a real, living ecosystem of actual people and entities and begin to understand how a local economy is co-created through their interactions.

Would this be representative of the economy as a whole? Of course, not. There would be massive biases linked to local industrial fabric and wealth levels. To roll up this data into a state, national, or global economy, one would have to empower people to build their own model at the local level. Providing the structure and platform that allows this local modeling would be a great role for government, instead of pretending that it owns the economy or creates jobs. The role of government in economic policy should not be to build top-down expert models of the economy as a whole, but to empower local folks to build models of their local market and learn from their interactions.

Even more importantly, if we began to understand causes and effects at the local economy level, the “economic agents” involved would be able to do something about the economy, rather than passively describe it. Individuals could change their relationship to local businesses, for example, by forming communities around them. Local businesses could mobilize those communities by setting up platforms that better connect them to their local customers (for example, I’d love to rally a few of my local friends to help a local hotel improve a few things in their menu and rooms, and we’d collectively bring them our out-of-town business). If local officials were to facilitate this dialogue, this would do more to create jobs and get them reelected than repeating hackneyed Republican or Democratic theories of austerity or stimulus.

Unfortunately, the scarcest commodity in economics is humility. Witness for example the recent Business Week article on the discussion between Paul Krugman and the President of Estonia and on the value of austerity in running a country. I will not venture an opinion about who’s right or wrong in this debate, but getting rid of the condescension conveyed in this dialogue seems to me to be job 1.

I, for one, would like to understand the economics of my village.

There‘s a French word for it

Sunday, May 6th, 2012

Living outside France allows me to return to my country of birth with a foreigner’s sensitivity to quaint language developments there. The French proclivity for multisyllabic concepts is unmatched. If you can think of a concept, there’s a French word for it.

One of my favorites is primo-accédant, which refers to people who buy real estate property for the first time (not necessarily primo real estate, I might add). How many other languages have coined a term for such a person? French people also have a word for people who have multiple banking relationships, yielding the pentasyllabic multi-bancarisé. Multi-bancarisé is opposed to mono-bancarisé when they have only one bank. As for sex, however, it turns out the French prefer multiple relationships, yielding a sizable segment of primo-accédants multibancarisés for whose attention bankers fight. I am told from admittedly less than reliable sources that the new French President François Hollande was heard warming up for his victory speech at La Bastille by repeating primo-accédant multibancarisé a hundred times at fast pace .

“Why would one do simple when one can do complicated”, was the wisdom offered by an old French TV cartoon called Les Shadoks. This exemplifies French people’s approach to language. A problem used to be un problème, but has now migrated to une problématique, with sounds like a much larger headache (moving from a masculine to a feminine also appropriately connotes of greater complexity). It was appropriately used by the hotel maintenance staff at my Paris hotel this week to describe a leaky toilet in my room (la problématique de la chasse d’eau). Things also used to last (elles durent), but they now hyper-last (elles perdurent), which, best I can see, is the new watered-down definition of eternity given the increased secularism of France. Any kind of work-related injury used to be commonly referred to as un accident du travail (a work accident), but employers are now invited to prevent troubles musculo-squelettiques. As a modest French employer, I have spent many sleepless nights imagining employee body parts flying all over the hexagone and being held responsible for such human implosion.

The political language of the French presidential campaign has also co-created its share of new words, most of them quite divisive. Islamophobie, while elegantly polysyllabic, refers to the sad reality of immigration-related tension and the racist feelings it engenders. I even heard an interview on television where a young woman referred to herself as an anti-islamophobe (that’s seven syllables if you’re counting), which, she explained, is a lot stronger than being an islamophile. The presidential candidates have spent a lot of time trying to diaboliser their opponents (paint the other guy into a devil), while taxing the other one of angélisme, the art of attributing angel-like feelings to people who should clearly be diabolisés instead. There is a trend toward the désacralisation of everything (literally take the sacramental portion out things), most notably marriage, paying taxes and les institutions.

The French are also world-class when it comes to metaphoric expressions. When they mean to convey “let’s not worry about that”, hip French people like to say “on ne va pas se mettre la rate au court-bouillon”, which literally translated means something like “let us not make spleen soup out of it”. In case you wondered about ingredients in cuisine nouvelle. Another popular expression to convey “it’s not even close” is “y’a pas photo”, literally “there is no need for a photo-finish on this one”. This one appears to have originated with horse racing, and the celebrated tiercé et quarté du dimanche. French people used to eat horses in boucheries chevalines, but the trend is clearly toward less eating and more betting. Some uncharitable commentators have referred to the new French President François Hollande as “il n’a pas fait l’école du rire” (literally, “he did not graduate from laughing school”), because of his serious demeanor. I can’t wait for the slap fest at the next sommet franco-allemand with Angela Merkel. given her own barrel of laugh approach to things.

While I increasingly need an interpreter to decipher those new expressions, a few concepts have remained reassuringly the same (ils ont perduré, as it were). The dame pipi, still available at most French railroad stations in Paris, is still à son poste, collecting coins before letting you faire vos besoins  (attend to your needs, or do your business). For good measure, the French have added some automation equipment (the French are big on infrastructure, particularly when it comes to bathrooms and fast trains), such that you now not only have to produce at least 50 centimes d’euro (or risk the wrath of madame pipi in a surprisingly polyglot tirade), but also have to jump turnstiles with suitcases, encouraged by a crowd of lookers-on inspired by the popular TV game show Fort Boyard. Engineers at the French railroad organization SNCF were clearly never told that train travelers use suitcases, in full illustration of the motto of the French elite engineering school Polytechnique which stipulates: we know some things works in practice, but do they work in theory?

Of course my timing is particularly bad here. The French are at a serious juncture in their political history, having just elected François Hollande to become Président de la République Française, and here I am, participating already in his désacralisation and his diabolisation. Cher Monsieur le Président, I present you with my best wishes in addressing la problématique of France, such that my former country can perdurer, with a special thought for the primo-accédants, whether of the monobancarisé or the multibancarisé variety, and whether they are prone to troubles musculo-squelettiques or not. Vive la République. Vive la France.

The role of government: be a local economy activist

Monday, December 19th, 2011



I became interested in economic affairs by listening to my father’s speculation about where commercial trucks driving up our street in Eastern France came from. As a German teacher in the local public high school, his own finances were protected from any competitiveness consideration, yet he instinctively understood the power of business in creating local wealth for the community. He also taught at a local textile institute and learned through conversations with his students how tough it was for local plants to compete against rising Asian factories. Although the value system at our household was mostly academic – you were either a “good student” or you were not – he marveled at how a few of his “average” students had become local entrepreneurs and created jobs around our home town. He often quoted the example of a local industrial baker who, while not an A student in his German class, had grown to hire hundreds of local people, eventually providing a strong career to one of his sons-in-law. “My job is to help my students export by teaching them German”, he would say. This was the first public-private partnership of my young economic life.

When I hear how confused we have become about what makes an economy tick, I revert back to my belief in “it’s the local economy, stupid”. By now, we’ve all learned that jobs are created by small businesses, who are by definition local. Economic wealth is generated when a few entrepreneurs find local financing to hire qualified local workers trained at local schools, thereby generating income that can be spent in local shops and invested in local houses, thereby allowing local politicians to be popular and get reelected. The process of co-creation through which these people work with each other – the entrepreneurs, the employees, the bankers, the customers, the service providers, the politicians – is a lot more important than the economic policy set by a central government anywhere. Sadly, this is not how economists think, as they arrogantly keep searching for the next policy paradigm.

So why do we spend so much time devising policies about which we’ll never agree – the role of taxes, regulation, economic stimulation, consumption, or interest rates? Instead of fighting fratricide conceptual battles, let us forget about top-down policies such as reducing taxes and lowering regulation, since they have produced the current financial crisis. Ignore the dogmatic belief in stimulating the economy through spending and investment infrastructure, since this Keynesian prescription has pretty consistently failed in the past. Ignore the battle between austerity and economic stimulation that currently divides the world. All represent a bad framing of the economic challenge in the first place.

The role of government should be to provide the platform through which economic agents engage with each other at the local level. What we need is a process, not a policy answer. These entities are largely disjointed today. I dream of empowered local bankers acting as clearing channels between local savings and local lending and investment, rather than acting as anonymous branches in their global bank’s central policy. I dream of high schools that would be attuned to the needs of local businesses (I wish all high school teachers had been as aware of the local economy as my father was!). I dream of local entrepreneurs sponsoring scholarships for smart local kids and maybe personally setting them as entrepreneurs to be, not as a concession to the inevitable social responsibility requirement, but in the hope of breeding the next generation entrepreneurs and benefitting from their success. I dream of local corporations investing in local services and shops to help them develop by recognizing they are needed to provide a high quality of life locally. I dream of financial products that would help professionals develop their clientele and their clients afford their services. I dream of politicians facilitating the process of bringing together the financial managers of public projects, the local chamber of commerce, local talent, and local associations. I dream of engaging all of these people in the transparent development of their town or city and accepting joint responsibility for the achievements of the local economy.

Some industries are leading the way by becoming local again. Large international grocery stores are co-creating with local farmers because of the local food movement and the demands of sustainability. Even banks are attempting to become more local again to beg for the forgiveness of their sins, trying to reinvent the old-fashioned community banking model of yesteryears. The local trend is there for all to see.

Some of these local government processes exist in embryonic fashion – e.g., town meetings — but by and large, nobody has devised the process of local co-creation that would bring those people together. There are missing interactions everywhere, so local economies lie inertly by the side, waiting to be awakened. Government people have not been trained on how to become local economy facilitators and activists. What is needed is a giant government re-skilling process. We might as well start now.