September 2009 Archives

Rankings Redux

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Since I posted the last entry, I have had an interchange with Newsweek that has cleared up some of the mystery. The order of the rankings in the Green Corporations table is determined by something called a z-score, not the raw impact data. The z-score is a measure of the distance a score is from the mean, normalized by the standard deviation.* It’s just something like this that may have triggered Lord Disraeli’s initial outburst about statistics. It is more work that I am willing to do to calculate these scores for the whole set, so I will just have to accept the mathematical accuracy of the data. But not of the significance of the data.

Mother Nature, as I noted, cares only about the upset we are causing her, not about the intentions or reputation a company possesses. She might laugh out loud at seeing the data on which this ranking is based reported to two decimal places when everything is based on opinions one way or another. Everything that has gone into this ranking is arbitrary from the use of revenue to normalize impact scores to the choice of weighting factors and the use of z-scores. It is ingenuous to conceal this arbitrariness behind four significant figures (for all the nerds that read this blog).

Anyway, I do recant my statements about the internal consistency of the presentation, but not about its relevance or meaningfulness.

*Z-scores are used in rankings, such as the US News and World Report’s ranking of law schools and business schools. It, in theory, shows how any entry compares to the average for the factor. The composite scores are very sensitive to the weighting factors used. Why, in this case, the choice of 45%, 45%, and 10%? Nice round numbers???

Lies, Damn Lies, and Rankings

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Lies, damn lies, and statistics is a phrase usually attributed to Lord Disraeli. With the profusion of rating and ranking schemes, the time has come to bring it up to date, as the headline proclaims. Wal-Mart has recently announced its plans to rate all of the hundreds of thousands of products it sells. We have ratings of plain colored colleges, green colleges, corporations in many shapes (Fortune 500, Dow Jones Sustainability Index…) and now the Newsweek list of the 500 greenest big U. S. corporations.

The idea of ranking things of all sorts is an old and frequently useful one. The truthfulness and utility of each scheme is, however, as the devil is reputed to have said, in the details. The outcome of any rating system that combines more than a single factor depends entirely, on the arbitrary choice of weights used in combining multiple factors. To be perfectly honest, Newsweek should have labeled their listing as the “Greenest Big Companies in America, based on combining three independent organizations scoring of environment impact (45%), green policies (45%), and reputation (10%), normalized to 100 as the top score… They did provide enough information in the body of the article that a careful reader could try to interpret the ratings armed with more detailed data. But few people are such careful readers and so the ratings take on a life of their own.

I was going to argue that these ratings have little to do with what green means, but I have a much more interesting subject to talk about. I was curious to determine how the ratings were normalized so that the highest one is given a score of 100. So I did exactly what they said to determine the combined score. I multiplied the three normalized scores by the respective weighting factors and added them up. The results were inconsistent with the printed table. Dell comes out first, and HP drops to number 3 or 4. Intel shouldn’t be anywhere in the top group. I did go to their website to check the methodology, but, unless I have erred in following what I think they say, I cannot come up with the same set of figures. Either Newsweek hasn’t explained their ranking scheme clearly or they have tons of egg on their face.

The ENVIRONMENTAL IMPACT SCORE, based on data compiled by Trucost, is a comprehensive and standardized quantitative performance measurement that captures the total cost of all environmental impacts of a corporation’s global operations. Over 700 variables are summarized in the EIS. This figure is normalized against a company’s annual revenues, so that companies of all sizes and industries can be compared.

I looked at the details to find how they collected data on the more than 700 metrics, but could not find any information. The method used to compare companies by normalizing them by revenue is completely arbitrary as it assumes that the aggregate impact of any company is proportional to their size.

There is a further serious error in reporting the result to two decimal places. The components are merely estimates and have little connection to reality. A. N. Whitehead called the practice of reporting nature more precisely than nature really is the “Fallacy of Misplaced Concreteness.” Even if the numbers were algebraically correct, which they do not seem to be, the real difference between a score or 98.87 and 98.56 is of no meaningful consequence, except that it will allow some firm to boast about being Number One or Two as if that meant something special.

Special to whom. Maybe to the stockholders or some regulatory agency or a prospective employee or… The party with the most interest in the matter is Mother Nature, and her question might be, “Do these numbers have anything to do with how you are treating me?” Yes, in some small way, but not in any case directly correlated with how badly our environmental world is faring. The environment is affected by the actions we take that interact with it, not by our good intentions or what people say about us. Green policies are just writing on a piece of paper; they mean little until enacted. My MIT students found more than 15 years ago that companies that sign on to voluntary, industry-based regulatory programs with mandated performance targets show great disparities in how they perform under the mandates. Similarly, reputation can certainly be earned, but is also created by careful public relations. Only measures directly related to environmental interactions are meaningful in a static index. Reputation and policies might be helpful in guessing who is likely to rank higher in the future.

The commodification of a complex relationship between what firms do and what happens to the world as a consequence leads to misunderstanding and mistakes, and to the appearance of unintended consequences. Further, I could find nowhere any indication that the environmental impact score was based on a lifecycle analysis. This omission is very serious as it may miss the biggest impact that a corporation produces. The major impact of making and selling cars comes after the car is driven off the dealer’s lot. The biggest impact from Target or Wal-Mart is derived from what goes out the front door.

Those who argue that arbitrary rating schemes like this, and say Wal-mart’s Sustainability Index, are useful because they incentivise firms to strive to be Number One. This sounds good, but if the numbers don’t relate to the state of the world and how it is changing, the scores become a target more for the public relations staff and not for the people in the firm that understand that what is important may not raise the score.

When Things Bite Back

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The headline of this post is the title of a book by Edward Tenner with the subtitle, Technology and the Revenge of Unintended Consequences. This theme runs through my book. While driving today, I heard a story on NPR about a device that will prevent texting while driving. Distractive driving has become endemic especially among younger drivers, and has become a major source of automobile accidents. Many states have passed laws making texting while driving illegal.

A nationwide survey this year showed an estimated 45 percent of drivers 30 or younger are sending or receiving texts behind the wheel. Teens call it “driving while intexticated.”

The story, which can be found at the NPR website, centers on a teenager that had a serious accident caused by texting following by a second one within a year for the same reason. She found the addictive habit that texting can become too difficult to break. Other young drivers provide similar testimony to the problem.

“I tried really, really hard not to,” Terry says. “Then it got to the point where I would do it only once every 5 minutes. I would rarely do it — it got to the point where when I was alone in the car, I would do it,” she says. “I don’t know — it’s just so addicting, I just can’t put it down.”

The second part of the story is about a device called “Key2SafeDriving” that can be installed in a vehicle. The device deactivates the cellphone when the car is started. The developers recognized that addicts will do almost anything to feed the habit so they added a feature that signals the parents (or other responsible party) if the driver attempts to bypass the system. Ironically this message is sent as text.

Addiction is the result of deep feelings of emptiness, stress, or the sense that something is missing. Texting, like the consumption of alcohol, is an attempt to fill the hole or stop the pain. Creating one technological remedy to counteract the effects of another is surely not addressing the real concern of the thumb-happy texters. Prohibition did not stop alcoholics. Taking away cellphones or deactivating them will not stop these young people from acting out their concerns. Rather than celebrate the technological inventiveness that produces a “solution” to the unintended consequences of addictive patterns of consumption whether it be alcohol or texting, let’s dig much deeper, uncover the root causes of this unsustainable behavior, and focus there. The solution will be found somewhere in a web of human relationships that has become dysfunctional. Are we now going to add texting to the ever-growing family of addiction rehabilitation programs that treat alcohol, drugs, and even shopping, which has its own name, omniomania?

Learning About Sustainability from Pigs and Trash

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Gregory Bateson once wrote in The Ecology of the Mind, “Lack of systemic wisdom is always punished.” Unfortunately for those who might learn from the bad consequences of such failures, the evidence frequently comes much later and escapes notice. The relationship between ill-considered actions and the collapse or serious malfunctioning of the system they perturb is often tenuous and the delay for the response to appear too long to make the connection clear. Such is the case with climate change. It has been excruciatingly difficult to make a convincing case linking greenhouse gases and temperature rise to the general public for this reason.

Occasionally we can observe a systems failure infolding right before our eyes. Or more accurately read about such a case. A few days ago, the New York Times published a story about the mess that followed the killing of all the pigs in Cairo purportedly to avoid swine flu, even though no direct link between pigs and humans that become infected has been established. In a cascade of causal loops, the slaughter of the pigs destroyed the ability of the informal garbage collector sector to get rid of the organic portions of household waste. So after stripping out anything of value, the garbage has been left to rot on the streets. That’s the technological story, but not the whole story.

The “official” waste collection program in Cairo was contracted to a multi-national firm, unnamed in the Times story. They imported a system found in many places around the globe—placing collection receptacles at strategic locations, creating another system failure, but this time cultural, not technological.

Cairo’s garbage collection belonged to the informal sector. The government hired multinational companies to collect the trash, and the companies decided to place bins around the city. But they failed to understand the ethos of the community. People do not take their garbage out. They are accustomed to seeing someone collecting it from the door.

For more than half a century, those collectors were the zabaleen, a community of Egyptian Christians who live on the cliffs on the eastern edge of the city. They collected the trash, sold the recyclables and fed the organic waste to their pigs — which they then slaughtered and ate.

After the fact, the government claimed that the reason for the slaughter of all the pigs was to clean up the zabaleen’s neighborhood. It really doesn’t matter what reasons are given for an act that causes a system to collapse. For those that study public administration, such failures are endemic in highly bureaucratic organizations, such as exist in Egypt.

There’s another important lesson here. The informal system of the zabaleen was self organized and relied on local knowledge. I would imagine that it evolved over time with the actors learning as they worked. Trying to replace this system with a system that was developed in a vastly different culture ignores the complexity of socio-technical systems and is asking for failure from the start. Sustainability is a property of such a complex system, but of global systems that are much more interconnected and span many places and cultures. We in the United States and the rest of the modern world are ignoring Bateson’s words in our attempts to solve climate change and other aspects of unsustainability with disconnected, culturally deaf and blind, largely technical remedies. We are indeed likely to be punished.

The Business of Sustainability

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The headline of this post is the title of a just released report published jointly by the Boston Consulting Group in collaboration with the Sloan Management Review. There is much in it worth reading and I will make it the subject of several posts. (Disclosure: I was one of the “thought leaders” interviewed by the Sloan Management Review in the development of this report.)

Today I am simply going to dwell on the title, The Business of Sustainability. I’ll bet that most of those that read the report or news about it haven’t thought about the title. What is the “business of sustainability? Before you read on, stop and think about this question. For help, here’s a few paragraphs from the report:

Sustainability is garnering ever-greater public attention and debate. The subject ranks high on the legislative agendas of most governments; media coverage of the topic has proliferated; and sustainability issues are of increasing concern to ordinary citizens around the world.

However, the business implications of sustainability merit greater scrutiny. Will sustainability change the competitive landscape and reshape the opportunities and threats that companies face? If so, how? How worried are executives and other stakeholders about the impact of sustainability efforts on the corporate bottom line? What—if anything—are companies doing now to capitalize on sustainability-driven challenges? And what strategies are they pursuing to position themselves competitively for the future?

I also did some web surfing and found many entries referring to this phrase.. Another comes from an-about-to be published encyclopedia, also entitled, The Business of Sustainability. The editor says about it:

The existence of The Business of Sustainability reflects a new competitive context transformed by rising fuel prices, widespread concern over the impact of climate change, and heightened consumer awareness of global health issues. Sustainability is being re-framed with an explicit pro-business agenda based on the power of innovation to support and serve the globe’s seven billion inhabitants without compromising the ability of future generations to meet their own needs.

If sustainability is taken to be a desirable property of the whole social system (as I do), then does this construction have any more meaning than the business of justice or security or any other basic social goal? What about the “business of life?” I don’t think any of these are meaningful, and diminish and vitiate any discussion that goes under such rubrics.

Businesses come in all sizes and shapes, but have one thing in common that constitutes them as a “business.” They make offers of goods and services to markets composed of willing buyers. While doing this, they contribute directly to the customer’s satisfaction, but indirectly affect the whole societal and natural system. These unintended consequences oppose and erode the positive ends provided by the delivery of these goods and services. Until the Civil War, slavery was considered acceptable in doing business. The situation was not sustainable (nor acceptable) from a human perspective. The continued presence of slavery threatened to bring down the whole societal system of that time.

Now we are in a similar situation although the details are very different. Human satisfaction has become predominantly measured by wealth, including all the things that can be obtained in the marketplace. Slavery is no longer acceptable, but, in its place, we tolerate huge disparities in the ability to acquire the goods and services that count. The failure to provide universal health care is an example. The environment which serves as the fundamental life support system for all life is systemically being destroyed.

Business, the same business that is now supposed to become the business of sustainability, is a major factor in creating this situation. Not the only factor, but given their great power to shape public policy, the most powerful actor in the game of life. It seems ironic at best and insane at worst, to turn now to business as the deliverer of sustainability, whatever we mean by that term. Business surely has a role, but is has to start with accepting their historic contribution to the debit side of the societal ledger.

A close reading of the above-mentioned report and of other business-related claims to sustainability suggests that this strategy is grounded on technological innovation and efficiency. Technology and efficiency are related, but neither has the inherent potential to turn the tide of unsustainability. Efficiency is not valuable per se but only as a way toward more production and consumption. If the added output would be put toward reducing economic disparities world-wide, maybe it could count towards sustainability, but almost all of what I read is directed toward our already sated society.

My argument against mislabeling economic and social actions as contributing to sustainability is that it hides the real causes and turns attention away from attacking unsustainability at the roots. This is an old and universal problem. Marx and the critical thinkers that followed him showed us how difficult it is to dig deep enough to unearth the real factors that create social and natural dysfunction. He did not have a solution that has worked, but that cannot be used as an argument to stop digging down and discovering something that has promise in today’s world. The business of sustainability only attacks the issues at the edges. Can it be that our existing political economy is not equipped to deal with the present globalized world where the limits and cracks have begun to show themselves? If I had to put this conundrum in a single sentence, it might be, “Can Wal-Mart be a leader in reducing levels of consumption?” Such business strategies might really be the business of sustainability.

Indices Versus Meters

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A reader asked me about Google’s PowerMeter and how does this compare to Wal-Mart’s Sustainability Index, which I have criticized on several occasions. First, I would be comparing apples and oranges. These two proposals represent very different kinds of ways to inform people.

The Google PowerMeter and other similar processes are ways to evaluate energy consumption. The Google system links to a smart meter installed by the power company at a home or office, collects detailed data on energy consumption, organizes the data, and presents it to the consumer via a personal Google webpage. By observing patterns versus some separate record of what electrical services one uses during the day, the consumer can begin to understand where the power is being used. Here’s what Google says about the project.

At Google we’re helping enable a future where access to personal electricity information helps everyone make smarter energy choices. Google PowerMeter shows consumers their electricity consumption in a secure Google gadget. Today we are testing the product with utility partners in the US, India, Germany, and Canada.

Armed with such information the user can change usage habits or replace devices with more efficient upgrades. The key here is that the consumer gets data that connects behavior directly to something of concern, in this case, electric power consumption. The process makes no attempt to make a jump to how individual contributions will affect global warming except in very general terms. The name is clear—a power meter, something that most homeowners understand.

The Wal-Mart case is different. Wal-Mart has proposed to develop a “Sustainability Index,” based on answers collected from suppliers of goods to 15 questions in four categories:

  • Energy and Climate
  • Natural resources
  • Material efficiency
  • People and Community

Their answers will be quantified and combined into a single summary index with values between 0 and 10. The first difference between this system and the PowerMeter is that the number has no connection to physical reality as do the data on power consumption. Nor does the Index have any direct connection to the object it is supposed to stand for, sustainability. The purpose of the Index, according to Wal-Mart’s CEO is

“The index will bring about a more transparent supply chain, drive product innovation and, ultimately, provide consumers the information they need to assess the sustainability of products. If we work together, we can create a new retail standard for the 21st century.” Mike Duke, President and Chief Executive Officer, Wal-Mart Stores, Inc. Walmart Sustainability Milestone Meeting, July 16, 2009

The use of this Index may indeed increase transparency, and drive innovation in the same way that benchmarking works to improve product quality in the general sense. With one big caveat, however, what this benchmark means will never be clear. To be useful, benchmarks have to be tied to some measurable quantity, even if it is subjective, for example, a customer satisfaction survey. Even if every product eventually scored 10 in every category, we would still not know how their products interact with the real world. Anyway, the critical concern about consumption is not at the margin—how much better is an 8.2 than a 6.5—but is related to the total amount of stuff we consume. And of course Wal-Mart would have us consume more and more.

The third promise of Mike Duke to—“provide consumers the information they need to assess the sustainability of products”—is badly misleading and full of errors. First of all, sustainability is not a property of the products or, more generally, of any object. Sustainability is a property of the whole system we live within. Secondly, combined indices (and for the wonks that read this blog, multi-objective functions in general) are always arbitrary. Their numerical results always depend on the weights that must be used to determine the relative contribution of any one value to the whole. Such indices are useful seeing the results of trading off one of the categories against others. Such indices can never be directly related to any real physical object or state. The name itself, “Sustainability Index” is misleading as it has no direct relation to sustainability in that real world. Wal-Mart has joined a myriad of other firms in making the same erroneous claim about how their business activities relate to sustainability.

Wal-Mart risks promising much more than they can deliver and also raising the expectations of both their suppliers and, more critically, their customers. For this reason, what they are doing, even assuming the intentions are genuine, is to engage in a subtle form of greenwashing, that is, making claims that cannot be substantiated in reality. This is not the case with Google. Their proposal is based on sound principles and will generate meaningful data that can be used to induce consumer behavioral change. Wal-Mart’s Index may also affect consumer behavior, but not in any direct relation to the effects their consumption has on the sustainability potential of the system out there where it matters.

(Cartoon courtesy of Google)

Watching Summer Vanish

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Summer is not officially over for a few weeks yet, but my personal version ended this weekend when we moved back to Lexington from Maine. This season has been particularly cruel, dousing us with rain and freezing us for the first part of the summer. Then in the middle of a great streak of gorgeous weather we had to pack up and leave. I do have to admit though, the beautiful days have followed us home at least for now. September is my New Year, not January 1st. Not just because the Jewish New Year comes at this time, but most of our yearly activities start in the Fall. That’s what retirement brings.

This is my time for reflection and commitment. The political year has been positive on the whole, but not yet living up to my hopes and aspirations. It’s very hard to be upbeat about the current state of our government. The founding fathers understood the need to have disagreements, but not become disagreeable. Ultimately we all have to pull on the same oars. Obama noted this characteristic of the late Senator Kennedy, saying in his eulogy, “And yet, as has been noted, while his causes became deeply personal, his disagreements never did.

I worry much about the level of violence that is creeping into our daily lives. More and more guns in places where they are least needed either for protection against militias or for hunting. I worry about the Supreme Court granting corporations more power. They have enough already—controlling and shaping our lives by shaping the way our markets work. Consumers live out of an addiction to stuff. My last blog noted the vast amount of space available just to store stuff that doesn’t fit into the ever-larger houses we live in. The financial markets have tilted the playing field catching almost all the surplus the economy produces rather than letting it trickle down as we are mostly tricked into believing. To give them more power to sway pubic opinion in political conversations so essential to individual freedom is to make a mockery of free speech. Corporations cannot speak anyway. Only people can speak. Individuals who speak have both a right to their words and a responsibility to admit to their authorship. Whoever speaks for a company can hide behind the anonymous shield of the immaterial corporate personhood created by the Supreme Court in little pieces over the past 200 years. Maybe “management” can speak for the economic interests of its stockholders and stakeholders (customers, supplies, neighbors, etc.), but it can never speak for the collective political interests of its stockholder owners.

What does all this have to do with sustainability? In my way of speaking, sustainability is the possibility of flourishing. Flourishing at its heart is about freedom—freedom from the domination of power of all sorts: corporate speech, guns in the schoolroom, usurious credit card practices, and on and on. Flourishing is also all about living in community at many scales from family units to the Nation to the whole Planet. Communities are little more than collections of people that care about the same things and work together to attain them. The deepest level of care is for others simply by virtue of their being human. Our forefathers said this simply by referring to one’s inalienable rights. It seems we are on the verge of forgetting this. When things, including inanimate objects like firms, become more important than people, we are flirting with a great danger that our whole complex system will falter and perhaps collapse.

I find it hard these days to remain optimistic about the future that my children and grandchildren will face during their lifetimes. But I am committed to seek solutions to today’s problems and continue working to persuade others to join in bringing about the deep changes in our culture and all its sub-systems necessary to slow down the momentum towards the precipice of unsustainability and shift the course toward sustainability. I have been writing this blog for about a year now building on my book. I would love to hear from those who are following along. I am heartened by the continuing positive response to the book. It’s out now in paperback, and I am hopeful it will continue to shake up readers’ ways of thinking and acting.

Self Storage--A Growing Way to Consume Even More

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Where to put all our solid waste has been a big question for many decades now. Recycling has reduced the amount of stuff being incinerated or dumped into a landfill. We are still filling up big holes in the ground at an appalling rate. Now it seems that we are filling up a lot of above-ground space with stuff that we own, but don’t use and don’t want to throw out yet. Jon Mooallem, writing in the New York Times Magazine about the growth of self-storage dropped some fascinating data and a few stories to liven up the numbers.

The numbers are pretty remarkable.

After a monumental building boom, the United States now has 2.3 billion square feet of self-storage space. (The Self Storage Association notes that, with more than seven square feet for every man, woman and child, it’s now “physically possible that every American could stand — all at the same time — under the total canopy of self-storage roofing.”) According to the Self Storage Association, one out of every 10 households in the country rents a unit, making facilities like Statewide among our last national commons — places where nearly every conceivable kind of American still goes.

I did a little arithmetic to convert the footprint to the volume of storage. Using an average height of 8 feet, the total volume is 18.4 billion cubic feet, equivalent to a 9000-acre fifty-foot deep hole in the ground, or about the same volume as 1.2 million average size houses. With 2.6 people in a house, this volume is equivalent to a city of detached homes with a population of around 3 million. That’s somewhere between Chicago and Los Angeles. Just imagine another Chicago without any people, just stuff filling all the dwellings. Since storage units tend to be more densely packed than a house is, we might have to add New York as well to the list.

The article points out that much of the recent demand for storage comes from people losing their homes due to the economic crunch. Still, more than half is occupied by people that simply have more stuff than they can or wish to keep at home.

“A lot of the expansion we experienced as an industry was people choosing to store,” Litton told me. A Self Storage Association study showed that, by 2007, the once-quintessential client — the family in the middle of a move, using storage to solve a short-term, logistical problem — had lost its majority. Fifty percent of renters were now simply storing what wouldn’t fit in their homes — even though the size of the average American house had almost doubled in the previous 50 years, to 2,300 square feet.

Maybe the recession really is making American consumers serious about scaling back, about decluttering and de-leveraging. But there are upward of 51,000 storage facilities across this country — more than seven times the number of Starbucks. Storage is part of our national infrastructure now. And all it is, is empty space: something Americans have always colonized and capitalized on in good times, and retreated into to regroup when things soured. It’s tough to imagine a product more malleable to whatever turns our individual life stories take, wherever we’re collectively heading.

Maybe this story is, as the author writes, just part of the American dream, but is also another example of cultural voices that encourage us to consume. The credit crunch has forced people to reduce their buying, at least for a moment. The massive Federal effort to fix that problem promises to restore consumption, but maybe not all the way to where it was.

The reality of the solidity of exterior walls of homes used to place another constraint. There just wasn’t enough room for another piece of furniture or workbench in the cellar. It seems that even this obstacle to acquisition of stuff has been overcome. Any way you want to think about sustainability, it can’t come unless consumption in the usual sense of material goods is drastically reduced. It makes little sense to continue to build cultural (advertising and easy money) and physical (storage) infrastructure that moves people in the opposite direction.

The Danger of Being Partly Right

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It is always a pleasant surprise to read an article by a leading economist who doesn’t claim to know all the answers. More often it’s one economist arguing that all the rest of his profession has missed some critical item. Paul Krugman, writing in the New York Times Magazine, is somewhere between these cases. He asks and answers the question, “Why economists from all parts of the theoretical spectrum missed seeing the arrival of the financial collapse and the recession?” Nobody, except for a handful of academics, foretold of the coming disaster, the parts of the article that argue for or against either of the two primary schools within economics. Krugman calls them the ‘saltwater’ and ‘freshwater’ schools because the leading thinkers of the two schools tend to be situated along the two coasts and the middle of the country, respectively. He does take sides, arguing for the saltwater version of Keynes theories, albeit modified to reflect learning since the Great Depression.

The more interesting and important part of the story for me is his discussion of the imperfections in the theory and the failure of the field to recognize these in making policy recommendations that were then enacted by the public and private financial systems.

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.

Over 80 years ago, the British philosopher, Alfred North Whitehead, saw this danger as a problem with theory in general. Calling the failure to distinguish reality from the elegant mathematical forms that theories take, “the fallacy of misplaced concreteness,” he saw this error as creating “great confusion in philosophy.” He was referring to the era when science fell under the rubric of philosophy. Now in our rationalizing and technocratic culture, this error can tunnel its way into the institutional framework that sets the rules and norms that drive society. This exactly what appears to have happened in the domain of macro-economic policy and practice over the past several decades or more. When beauty or elegance replaces truth, the outcome is uncertain as the models do not capture the essence of the real world. When the real world system is complex as it always is when human beings are integral to it, the missing understanding can and does lead to, not only missed targets, but serious upsets, collapses, and regime changes. Krugman does understand this, but shrugs it off in a short blog piece following his article in the Times.

Actually, let me put it this way: the economy is a complex system of interacting individuals — and these individuals themselves are complex systems. Neoclassical economics radically oversimplifies both the individuals and the system — and gets a lot of mileage by doing that; I, for one, am not going to banish maximization-and-equilibrium from my toolbox. But the temptation is always to keep on applying these extreme simplifications, even where the evidence clearly shows that they’re wrong. What economists have to do is learn to resist that temptation. But doing so will, inevitably, lead to a much messier, less pretty view. So be it.

Easy enough for Krugman to dismiss the problem with a shrug. He already has his Nobel prize. But try telling this to a rising young star silently thinking about the Nobel in Economics. One doesn’t win the prize by offering up a mess. In science being wrong doesn’t carry the same potential for human distress than do errors in the social (or, better, human) sciences. Ever since Popper introduces the idea of falsification into the scientific methods, most scientists accept that their models are contingent and conditional. Further their theories generally apply to some unchanging object although subject to changing internal dynamics. Economists’ worlds are always changing such that the a priori assumptions for the theory at time A are never quite those at time B. Proof of the validity, as in natural science, is not possible and, thus, the correct economic theory to apply in setting policy is alway arguable. As Krugman noted, disagreement is a notable feature of the economics discipline. The lesson for the rest of us is to insist that our economic leaders and advisors offer policies that can be adapted when the results turn out to be different from those they expected, and before the bubbles burst.

The "Ultimate" Credit Card

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We’re still up in Maine enjoying a late burst of summer after a very disappointing season. The mail comes once a week being forwarded by our home post office. Today two boxes arrived with lots of throwaway items, mostly without even opening them.

One letter stood out from the pack so I opened it and found an invitation to apply for a credit card. Most are easy to spot and go directly into the wastebasket. This one was carefully disguised in a sleek black envelope. My first thought after figuring out what the contents were was, “so much for the credit bubble and whatever we have learned from the crunch it brought.”

First a description of the card and then some thoughts about it. I’m going to quote some of the copy on the brochure.

BLACK CARDâ„¢

The World Awaits.

GET YOUR EXCLUSIVE BLACK CARD NOW. THE WORLD’S MOST PRESTIGIOUS AND VERSATILE CREDIT CARD.

  • Limited Membership
  • 24-hour Concierge Service
  • Exclusive Rewards Program
  • Luxury Gifts
  • Patent Pending Carbon Card
  • Annual Fee $495

For those who demand only the best of what life has to offer, the exclusive Visa Black Card is for you. The Black Card is not just another piece of plastic. Made with carbon, it is the ultimate buying tool.

The first thing that caught my eye was the annual fee. Wow. I’m still using a card with no annual fee. I looked at the rest of the information to figure out why this was so high. Surely a card made from carbon instead of plastic couldn’t be the reason. Maybe the issuing bank (Barclays) doesn’t understand that the plastic cards contain carbon as well, and that this card wouldn’t reduce carbon footprint enough to attract environmentalists. The fact that it is to be patented can’t be worth that much.

It must be, then, the 24-hour concierge service. I guess the target customers for this card know what that means. The brochure tells little. I don’t know how I got on the list as I rarely stay at hotels with concierge services. How about luxury gifts? If I wanted to, I could charge fancy presents just as well on my ordinary Visa card. Maybe they mean gifts that cost more than the credit limit on my card.

To be serious for a moment, this card and the advertising for it are signs of the centrality of consumption in the US. This one is aimed at the wealthy, but I can imagine promotions aimed at other economic levels. It makes a fetish out of buying, calling it “the ultimate buying tool.” How does the fact it is carbon make it “ultimate?” It’s hard not to expect that consumption will raise to pre-recession levels when the system that provides the fuel—credit—shows no signs of learning. It’s not that we lack “buying tools.” It’s that we lack enough self-consciousness to understand that it’s not buying at all that makes us human nor fulfills our fundamental concerns.

I did a little web searching after writing this and found that this card has been around for a while. Barclays must be getting desperate adding me to the mailing list. I found some info on a competitor, the American Express Centurion card (also known as the Black Card). I never got an invitation for this one. I think I know the reason why. It costs $2500 a year after a $5000 initiation fee. Maybe the reason for the high cost is that their card is made from titanium instead of the more humble graphite.