Quantum Sense

Quick – which came first: economies or wealthy elites?

I raised this question because some politicians have developed a passion for referring to the wealthy as “job creators” – inferring that the well-being of the economy is tied to the well-being of the wealthy elite. The House Republican Caucus has a whole section of their website devoted to “job creators.” House Speaker John Boehner claimed last fall that “job creators are on strike.“  There’s even a group of business leaders who have established something called the Job Creators Alliance.

Since the middle of 2011, it has become almost impossible to find a Republican who will say that someone is rich. As Jon Stewart noted at the time: “Republicans are no longer allowed to say that people are rich. You have to refer to them as ‘job creator.’”

The question begging to be asked in all of this is whether the wealthy are, in reality, “job creators.” Based on a look at the facts involved – including both relevant statistics and insights provided from modern science – I believe the answer to that question is NO.

In an article about Boehner’s “job creators are on strike” claim, the website Crooks and Liars offers an array of numbers that don’t support his claim. They point out:

On January 9, 2009, the Republican-friendly Wall Street Journal summed it up with an article titled simply, “Bush on Jobs: the Worst Track Record on Record.” (The Journal’s interactive table quantifies his staggering failure relative to every post-World War II president.) The meager one million jobs created under President Bush didn’t merely pale in comparison to the 23 million produced during Bill Clinton’s tenure. In September 2009, the Congressional Joint Economic Committee charted Bush’s job creation disaster, the worst since Hoover:

The reason Republicans claim the rich are “job creators” is that they believe in “trickle down economics.” According to Investopedia:

Proponents of this theory believe that when government helps companies, they will produce more and thereby hire more people and raise salaries. The people, in turn, will have more money to spend in the economy.

Basically, if you let those at the top of the economic pyramid have more, the benefits will “trickle down” to everyone else.

This reflects a classic mechanical, “top down” view of how things work. In such a world, those at the top of an organization – be it economic, social or political – “operate” the machinery of the organization. They make the decisions and call the shots. Those below them in the hierarchy follow their orders.

If those on top operate the machinery properly, they reap the benefits; those who follow orders are compensated as those on top see fit. If they don’t operate things properly, then (in theory) the organization replaces the operators. It’s all very controlled and orderly – especially for those in control at the top. At least that’s the way it should be according to the believers.

Unfortunately, after 30 years of trickle down economics, it’s pretty clear things don’t work that way. How could we be in our current economic mess if they did? (Anyone blaming the current mess solely on Obama and the Democrats is just not looking at the facts. See the above chart, in which job growth from Reagan forward has yet to equal that of Carter.)

So why don’t they work? It’s because they’re based on an outdated world view. Republicans and conservatives have been looking at things from the traditional paradigm of Newtonian physics, which presented us with the “mechanical universe.” According to this paradigm, the best way to understand things is mechanically: an organization can be structured according to distinct tasks, each making a discrete contribution to the larger task of generating value, with everything managed according to classic command and control principles.

This view of management, which was the basis for mass production, was very successful for industrial production in the 19th and 20th centuries. And from this perspective, it might make sense to focus on those at the top who are “operating” the machinery.

However, some have begun to recognize that the mechanical universe is an illusion. As Dr. Brad Cox noted in a 2004 presentation titled “Command and (Out of) Control – The Military Implications of Complexity Theory“:

The Newtonian paradigm was so compelling, so neat, so logical – in short, so “right” – that it saw and imposed regularities where none existed. For the sake of finding solvable problems, science simplified reality by assuming an idealized world. It connected the discontinuities and linearized the nonlinearities – in short, it simply ignored all the countless inconsistencies and surprises that make the world – and war – such a complex and interesting problem.

The evidence is unmistakable: the Newtonian paradigm no longer satisfactorily describes most of our world (if it ever did). Science is slowly coming to recognize that the world is not remotely an orderly, linear place after all.

The same thing is true in economics. As Richard Wagner noted back in 2003, in an article in Financial Advisor:

Trouble is, our money words tend to ground in old models, particularly 17th Century physics and 19th Century biology. They have yet to incorporate the integral visions of 20th Century quantum physics or ecology. The result: “machines” vs. “ecosystems.” Not wrong, but not necessarily helpful. Often harmful. Mechanistic metaphors induce linear thinking that doesn’t accurately reflect 21st Century money. And money is hard enough without dysfunctional underpinnings. Unfortunately, inappropriate metaphors contribute to misunderstandings and questionable actions.

If we want to get beyond “inappropriate metaphors” that lead to “misunderstandings and questionable actions,” we need to face the facts. Trickle down economics doesn’t work, those at the top of the economic scale are not “job creators,” and making the rich richer will not make the economy stronger.  But where does that leave us?

We need to get to the bottom of this – literally.

One of the basic principles of complexity theory is called emergence. According to this principle, complex systems – be they biological, military, economic, etc. – develop from the bottom up.  As Dr. Cox explains in talking about military battles:

Evolution moves from the simple to the complex. Healthy complex systems evolve by chunking together healthy simpler systems. Attempts to design large, highly complex organizations from the top down rarely work, if ever. This merely confirms what successful military organizations have long recognized: success starts at the small-unit level. Build strong, adaptable squads and sections first. Train and equip them well – which includes giving them ample time to train themselves (i.e., to evolve). Give them the very best leaders. Give those leaders the freedom and responsibility to lead (i.e., let them act as independent agents). Then chunk the teams and squads together into increasingly larger units.

What this means is that if you want to improve the economy and create jobs, you need to focus on the simplest element in the economy: the individual consumer. If they feel economically secure and have sufficient funds, they will buy products, which will stimulate production, which will lead to the need for more workers. As venture capitalist Nick Hanauer blogged in his post “Raise Taxes on the Rich to Reward True Job Creators“:

…I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.

From the perspective of emergence, this is easy to understand. It’s not just “quantum sense” – it’s common sense.

Say you have some money and a passion for baking. So you decide to open a bakery. If your cakes and pastries are a hit with your customers, they will come back to buy more and tell their friends about your shop. The end result? With more and more customers you prosper – eventually to the point you need help and hire others.

But what if your customers don’t like your shop? What if they think your cakes and pastries taste bad or are over-priced?  What if your shop is not convenient or they just don’t like you? It doesn’t matter how much money you have. Unless you make the right changes, your shop is never going to prosper. At the least, you won’t be hiring others to help you. More likely you’ll be firing any help you have and sooner or later you’ll go out of business.

And if you’re the richest person in town and hardly anybody else has money for cakes and pastries? The end result will be the same. Without enough customers, your shop is doomed.

The essential point here is that an economy is a complex emergent phenomena. It starts out as something small and simple; only as it grows does it become more complex.

The earliest economies really were small and simple. Unlike market economies or even barter economies, they were “gift economies,” in which people gave things to each other – often without an expectation for immediate or future compensation. As economic anthropologist David Graeber described it:

…what would really happen, and this is what anthropologists observe when neighbors do engage in something like exchange with each other, if you want your neighbor’s cow, you’d say, “wow, nice cow” and he’d say “you like it? Take it!” – and now you owe him one. Quite often people don’t even engage in exchange at all – if they were real Iroquois or other Native Americans, for example, all such things would probably be allocated by women’s councils.

As societies grew larger and more complex, their economies gradually evolved into what we now call a market economy. However, we still can find examples of gift economies in modern life. These include free software like Mozilla and websites such as Wikipedia. In a sense this also true of science itself, in which discoveries are shared with others who are then free to build on them. The main benefit received by those doing the sharing is an enhanced reputation – a kind of variation of Graeber’s “you owe him one.”

So, getting back to my original question: which came first: economies or wealthy elites? As emergence teaches us, the answer is “economies.”  While more or less wealthy elites may develop in an economy over time, they are not the primary force behind that economy’s growth. Most importantly, they are not the “job creators.”

If we truly want to be effective in promoting economic growth and creating jobs, we should use what we learn from emergence. Let’s stop giving special favors to the rich and powerful, and let’s start focusing on the well-being of the real job creators – the middle class consumer.