No, global inequality plummeted when you state it exploded. The explanation is that global supply chains and the economic freedom of one billion potential workers signaled that labor was less scarce than technology, capital, entrepreneurial risk. and high-skilled labor. Thus even as global inequality dropped, lower skilled labor became less valuable in developed nations.
From a global perspective this was the beginning of the era of the greatest advance of human welfare ever in history.
You are framing one of the greatest events in history as a negative by focusing on the negative side effects (lower growth rates for unskilled wages).
2. Global leveling can go on for a couple more generations, but once Africa catches up, thereтАЩs nowhere else to go for cheap labor. Then what will you do about increasing global inequality?
1. Yes, I was expanding the reference from a privileged rich western viewpoint to a more empathetic, universal human perspective. The local effects are negative side effects of a larger net positive trend and failure to understand that leads to errors in judgement.
2. Well, to the extent that the increasing supply of global low-skilled labor is affecting the returns to capital and skilled labor, then once everyone enters the market, this will no longer be a driving factor of western inequality. Right?
What is your problem with inequality of market incomes?
Is there a proper/good level of inequality, or is perfect equality (regardless of contribution) desirable?
Should people who donтАЩt work and/or donтАЩt invest in education or skill development make the same income as those who get advanced engineering degrees and work stressful 60 hour weeks? Why? If you think they should make the same, then why should anyone work, or get educated, or invest, or be conscientious at all?
If anyone else cares to join in, their perspectives are also appreciated. Interesting topic.
I agree with you that global inequality has reduced as globalisation and trade increased in the last 40 years. A greater and cheaper supply of low-skilled workers devalued US labour.
To some extent it doesn't matter what any of us think about wealth inequality. People have different abilities, interests and morals so there will always be some degree of inequality. The problem is that high levels of inequality can lead to destructive conflict (the wars and revolutions of which Tomas speaks).
I think the majority of people accept inequality as a natural phenomenon, it is the lack of fairness and the absence of a level playing field that upsets them. Do you think the current global economic system is fair?
I agree fairness is a better framing than inequality, as unequal results commensurate unequal contributions can actually be a mark of an important type of equality and fairness.
Do I consider the current economic system as fair? Compared to most of the other economic systems of the globe over the last 12,000 years (post agriculture), then yeah, I think the current system is much more fair for most people.
By asking, are you thinking it is less fair now than usual? If so, why?
I think you make a really good point comparing fairness today with past times and I completely agree that the overall trend is towards equality of opportunity, freedom and fairness. The gains in these areas though were won by blood, sweat* and tears and the path was not linear. Alas, there are some people in society that donтАЩt believe in fairness as a principle and who do everything in their power to gain advantage over others. This means that maintaining these gains is a constant battle and we probably have to settle for less than a perfectly fair ideal world. Is there a good reason why a low-skilled US worker should get paid more than a Chinese one doing the same job or is that unfair?
Even a superficial look at the world around us tells us that whenever the stakes are high people will try to bend or break the rules (e.g. Lance Armstrong amongst many, many others). Corruption has been a constant throughout human history, but like inequality, it only threatens the stability of a society when it gets to a certain level.
There are no greater stakes for some humans on this planet than the control of international power and wealth so it would be quite extraordinary if there were no corruption donтАЩt you think? In a democracy there is an expectation of at least a veneer of fairness (even Vladimir Putin feels he needs to hold elections) so the corruption has to be more subtle. Economic corruption can come from bending or breaking the rules, but also in the crafting of the rules themselves. Do you think we live in a free market economy?
Originally my question to you was тАЬdo you think that current global systems are fair?тАЭ then I narrowed it to be more specifically the about economic system. Equally important and related questions surround the fairness of political, educational and judicial systems. If someone wanted to control power and wealth in a democracy the best way would be to design a system that appears to be fair and give choice, but in reality is guaranteed to the produce the desired outcome.
* I am including intellectual, theoretical and moral effort under this heading
I guess I agree that people have always and will always attempt to write the rules, bend the rules and if possible break the rules to their advantage. This is pretty much intrinsic in the Dilemma of Cooperation which has been such a headwind in 3.8 billion years of evolution. I further agree that rent seeking and privilege tend to grow over time in existing social structures.
Although I believe free market democracies are much better than all the other types of social organization tried so far, they have been and will continue to be under attack by those seeking privilege. This includes threats from above (elites), from outside (predator states) and from within (free riding, rent seeking, etc).
IтАЩm intrigued by your view on the dilemma of co-operation. I wouldnтАЩt necessarily see it as a headwind to evolution but rather as intrinsic to the тАЬdesignтАЭ. I think humans successfully solved the dilemma of co-operation tens of thousands of years ago. The nature of the dilemma changed about 12,000 years ago when the type of evolution and its driver changed. The winners became those who had the best social structures because power depended on social cohesion, and social cohesion depends on systems of trust and unifying narratives.
Corruption (cheating) is a breach of trust which is why it threatens social cohesion once it gets to a certain level. Why be honest and work hard when you see others cheating or just being freeloaders? Too many parasites weaken the host though and make it vulnerable to predators, so the balance will be restored one way or another. For a society to win this game it needs strong taboos or punishments to deter cheating.
Tomas and I had a conversation in the early days of Uncharted Territories about defining humanityтАЩs problems more clearly to help find solutions. My conclusion was that all the problems are тАЬmerelyтАЭ balance problems. Balance problems (e.g. inequality, fairness) will usually fix themselves eventually, just not in the way many people would like (e.g. war, revolution). I think one of the major balance problems in recent times has been the balance between co-operation and selfishness, but I see some signs of the pendulum swinging back the other way. I wonder if the rapid adoption of AI will push in the other direction , but I need to think about that some more before saying it with any confidence.
"IтАЩm intrigued by your view on the dilemma of co-operation."
Likewise, I am intrigued by your comments as well. Starting with the "headwind to evolution" comment, my phrase was alluding to the view that natural selection is about solving for genetic persistence, and that individuals can usually accomplish more together (by coordinating their actions) than they can alone. However, the dilemma of cooperation (as often illustrated by the Prisoners Dilemma) is that individuals can benefit MORE by exploiting cooperation (defecting). Thus genes are selected for being a bum, bogart or bully, which undermines all the logic for cooperation. When natural selection can solve for this dilemma (as in Nucleated cells, multicellularity, and insect colonies) we see spectacular success. Breakthroughs have been as rare as they have been successful, with these three separated by about a billion years each.
" I think humans successfully solved the dilemma of co-operation tens of thousands of years ago. The nature of the dilemma changed about 12,000 years ago when the type of evolution and its driver changed. The winners became those who had the best social structures because power depended on social cohesion, and social cohesion depends on systems of trust and unifying narratives."
My thinking on the issue is that proto-human foragers began to solve the issue through language and reputation, creating increasingly large and coordinated communities no longer dependent upon kin selection (inclusive genetic fitness). Humans were able to establish complex cultures which is a new type of cumulative knowledge, greatly separate from genetics. I agree with you that more cohesive groups dominated less cohesive ones, and that trust and unifying narratives (great term!) were essential here. I also agree that freeloaders (bums) and parasites undermine groups and that cheating needs to be suppressed for society and the individuals in it to flourish.
"My conclusion was that all the problems are тАЬmerelyтАЭ balance problems. Balance problems (e.g. inequality, fairness) will usually fix themselves eventually, just not in the way many people would like (e.g. war, revolution). I think one of the major balance problems in recent times has been the balance between co-operation and selfishness, but I see some signs of the pendulum swinging back the other way. I wonder if the rapid adoption of AI will push in the other direction , but I need to think about that some more before saying it with any confidence."
Could you explain further why everything is a balance problem? What about needs for energy? Needs for discovering solutions to new challenges? I am not following.
Just for further thought, I will add that cooperation and selfishness are of course not exactly opposites. One of the most important, indeed probably the most important, aspect to cooperation and coordination is positive sum actions which are good for all parties. The classic example is trade, where both parties gain something more valuable through the interaction thus improving the welfare of both individuals and of the group.
Connecting it all back to this original substack post, I believe that inequality can be a sign of a problem if rules are unfair or whatever. However, inequality of outcome can also just as easily represent the market signaling and rewarding changing behavior based upon supply and demand. IOW, drops in low skilled incomes (relative to capital or higher skill) can reflect either power imbalance, or the market signaling that there is too much lower skill and not enough higher skill. Fixing this imbalance actually weakens market learning mechanisms and makes the system and society duller and less dynamic, and thus more prone to elimination.
I donтАЩt think co-operation could be considered as a logical choice until logic existed. I would see it as just something that provided survival and reproductive advantage for individuals and species, so it was selected for even at very early stages of life on earth (as you point out, I had never thought of it in quite that way before). For humans, love and kinship are genetically-programmed, hormonally mediated ways of encouraging co-operation and trust. Genetic diversity is a key characteristic to species survival as it allows adaptability to changing conditions. Personality characteristics are largely genetically programmed (in both animals and humans) and are distributed in a roughly Bell- shaped curve. Evolution has selected for unselfishness*, but also for selfishness as under some circumstances (absence of external threat to the group) this will give survival and reproductive advantage. Some people will defect without a second thought, others will copy them if they see that defection is advantageous, some will use logic and decide if the balance of incentives is in favour of defection, for some co-operation is a learned behaviour, and others will just go with the rest of the herd. For a few at the other end of the personality spectrum their principles are more important and they wonтАЩt ever defect.
Social evolution has allowed the development of positive and negative incentives for behaviour that helps the group survive and thrive. The rules (written or unwritten) need to provide the right balance of incentives to be effective, but can be undermined without fairness of detection and enforcement. Some people will defect without a second thought, others will copy them if they see that defection is advantageous, some will use logic and decide if the balance of incentives is in favour of defection and some will just go with the rest of the herd. For some at the other end of the spectrum their principles are more important and they wonтАЩt ever defect.
The Prisoners Dilemma is an interesting theoretical exercise but in real life the situation is usually very different. Information about the other party (e.g. their reputation, trustworthiness, degree of loyalty) has already been gathered by the decision maker. Systems of trust have also been built up over time between the participants and these inform the decision making. There is no honour amongst thieves, so criminal gangs use threats of retribution (including threats against family or friends) to protect against betrayal. An ideological rebel prisoner might have much greater loyalty to the cause and to fellow conspirators so choose the co-operative option. Also, people often donтАЩt make rational decisions based on logic, they are influenced by emotions and feelings^.
тАЬHumans were able to establish complex cultures which is a new type of cumulative knowledge, greatly separate from genetics.тАЭ This is a really interesting idea and something I have been thinking about since Tomas started Uncharted Territories. Evolution appears to have become disconnected from the glacial pace of genetic change. Human social evolution took over once humans themselves became the selection pressure. More recently the evolution of ideas and technology has gained importance as has evolution in the corporate world.
With regard to balance problems, I was talking specifically about the problems of humanity as a whole, not those of nations, groups or individuals. Humanity has a broad range of genetic, personality, social and idea diversity to draw upon. Even if a large number of people developed a severe case of groupthink and decided to jump off a cliff like lemmings, there would be a survival reservoir of others who will not follow them. Some because they are resistant to change and risk averse and others because they are stubborn individualists who donтАЩt like being told what to do by anyone else.
The most important balance problem is the balance of power. The balance of power between different groups in a society will affect how well it functions under particular challenges. In wartime youтАЩd better listen to the military, in times of economic conflict the merchants/bankers are more likely to have useful ideas, during a pandemic it might be wise to listen to those who have expertise in viruses and public health. In post-war times the healers and those who understand spirituality will be more useful.
From the 1980s until 2008 the financial sector became way too powerful and there were negative consequences. The baton then passed to the technogeeks who think we should all live in a virtual world rather than the real one and that creating artificial brains is a good idea. This series of TomasтАЩ articles is all about the AI revolution and trying to understand what is likely to happen as a result. Who controls the technology will determine the way it is used and the early indications are that big business will be in control. That means the technology will be used to transfer and accumulate wealth.
The second most important balance problem is the balance of wealth (inequality level). Wealth is closely linked to power as wealth brings power, but you need power to keep wealth. Depending on how good the unifying narrative and the bread and circuses are, you need a large degree of power inequality to maintain a similar degree of wealth inequality. Otherwise тАЬthe poor and middle class, who vastly outnumber and outvote them, are incentivized to take from the richтАЭ and will do so. If you entrench power by corrupting democracy, the laws and the judiciary then the only option for change becomes revolution (though this can be relatively peaceful in some circumstances).
The specific discussion you were having with Richard and Tomas was about the impact on jobs and equality. My view is that for a variety of reasons macroeconomics is a poorly understood discipline and that there are better models available than those in common use. I think a flow model of wealth provides a more realistic understanding of what actually happens and I like the analogy of a semi-permeable membrane. Barriers between countries to the flow of wealth (the membrane) were historically things like geography, distance, hostility, language and lack of financial networks. In more recent times trade restrictions, capital controls, price controls and transaction costs impeded flow. Wealth is the thing that diffuses through these barriers slowly or rapidly depending on the size of the holes in the membrane. Eventually you get equilibrium where the amount of wealth is the same on both sides of the membrane.
Globalisation dramatically reduced barriers to the flow of wealth and resulted in global inequality plummeting with Chinese workers being a major beneficiary. In theory if this continued, the wages of a Chinese worker and a US worker doing the same job would eventually be the same. The problem comes from the fact that humans have strong loss aversion (the pain of loss is greater that the pleasure of gain) so if you try to pay a US worker less than before, then youтАЩre gonna get a riot (hang on a minute..,hasnтАЩt there already been a riot?). The US answer of course has been to use monetary inflation to cover up the problem, but by doing that you eventually run into the problem they have now. Creating money does not create wealth.
My view is that by definition, financial wealth is a relative concept so it isnтАЩt something that can be created or destroyed, it merely flows from one owner to another. There is always a loser for every winner and тАЬThus even as global inequality dropped, lower skilled labor became less valuable in developed nations. From a global perspective this was the beginning of the era of the greatest advance of human welfare ever in history.тАЭ Overall yes, but not for low-skilled workers in developed countries.
Evolution fixes imbalances by creative destruction and survival of the fittest group, so I often wonder when people talk about free markets if they realise that the rules of the truly free market are the laws of the jungle. Humans have spent many thousands of years working out better rules, but I think we still have a way to go.
* You are right to point out that co-operation and selfishness are not opposites. People will often co-operate with others and make alliances for purely selfish reasons. Others co-operate and put the needs of the group first because it feels right to them or they can see the logic of short-term sacrifice for long-term gain. I meant the tendency towards co-operation as a personality feature, so individualism is probably a better antonym.
^ One of my projects as part of my job is understanding the logic of emotions and feelings.
PS IтАЩm glad you like тАЬunifying narrativesтАЭ, I think itтАЩs an important concept. I canтАЩt recall if the specific phrase came from one of TomasтАЩ articles, but I certainly learnt a lot about the importance of stories from him so I canтАЩt take much credit for it.
Thank you for your considered and thought-provoking response.
тАЬHeadwind to evolutionтАЭ implies that evolution has goals which it is тАЬtryingтАЭ to achieve. I see evolution as a random process determined by the physical characteristics of the earth/universe not as a problem solving mechanism. Random mutations and events provide a survival or reproductive advantage so a particular organism thrives. If the advantage is a big one then that lineage comes to dominate its ecological space. Do you think evolution has a goal?
From a wealth standpoint, AFAIK it didn't.
The drops in inequality were WWI and WWII.
The high taxation levels of the 50s thrugh 70s *kept inequality low*, but didn't reduce it.
Then it explodes in the 80s.
No, global inequality plummeted when you state it exploded. The explanation is that global supply chains and the economic freedom of one billion potential workers signaled that labor was less scarce than technology, capital, entrepreneurial risk. and high-skilled labor. Thus even as global inequality dropped, lower skilled labor became less valuable in developed nations.
From a global perspective this was the beginning of the era of the greatest advance of human welfare ever in history.
You are framing one of the greatest events in history as a negative by focusing on the negative side effects (lower growth rates for unskilled wages).
1. We were talking about the US.
2. Global leveling can go on for a couple more generations, but once Africa catches up, thereтАЩs nowhere else to go for cheap labor. Then what will you do about increasing global inequality?
1. Yes, I was expanding the reference from a privileged rich western viewpoint to a more empathetic, universal human perspective. The local effects are negative side effects of a larger net positive trend and failure to understand that leads to errors in judgement.
2. Well, to the extent that the increasing supply of global low-skilled labor is affecting the returns to capital and skilled labor, then once everyone enters the market, this will no longer be a driving factor of western inequality. Right?
What is your problem with inequality of market incomes?
Is there a proper/good level of inequality, or is perfect equality (regardless of contribution) desirable?
Should people who donтАЩt work and/or donтАЩt invest in education or skill development make the same income as those who get advanced engineering degrees and work stressful 60 hour weeks? Why? If you think they should make the same, then why should anyone work, or get educated, or invest, or be conscientious at all?
If anyone else cares to join in, their perspectives are also appreciated. Interesting topic.
I agree with you that global inequality has reduced as globalisation and trade increased in the last 40 years. A greater and cheaper supply of low-skilled workers devalued US labour.
To some extent it doesn't matter what any of us think about wealth inequality. People have different abilities, interests and morals so there will always be some degree of inequality. The problem is that high levels of inequality can lead to destructive conflict (the wars and revolutions of which Tomas speaks).
I think the majority of people accept inequality as a natural phenomenon, it is the lack of fairness and the absence of a level playing field that upsets them. Do you think the current global economic system is fair?
I agree fairness is a better framing than inequality, as unequal results commensurate unequal contributions can actually be a mark of an important type of equality and fairness.
Do I consider the current economic system as fair? Compared to most of the other economic systems of the globe over the last 12,000 years (post agriculture), then yeah, I think the current system is much more fair for most people.
By asking, are you thinking it is less fair now than usual? If so, why?
I think you make a really good point comparing fairness today with past times and I completely agree that the overall trend is towards equality of opportunity, freedom and fairness. The gains in these areas though were won by blood, sweat* and tears and the path was not linear. Alas, there are some people in society that donтАЩt believe in fairness as a principle and who do everything in their power to gain advantage over others. This means that maintaining these gains is a constant battle and we probably have to settle for less than a perfectly fair ideal world. Is there a good reason why a low-skilled US worker should get paid more than a Chinese one doing the same job or is that unfair?
Even a superficial look at the world around us tells us that whenever the stakes are high people will try to bend or break the rules (e.g. Lance Armstrong amongst many, many others). Corruption has been a constant throughout human history, but like inequality, it only threatens the stability of a society when it gets to a certain level.
There are no greater stakes for some humans on this planet than the control of international power and wealth so it would be quite extraordinary if there were no corruption donтАЩt you think? In a democracy there is an expectation of at least a veneer of fairness (even Vladimir Putin feels he needs to hold elections) so the corruption has to be more subtle. Economic corruption can come from bending or breaking the rules, but also in the crafting of the rules themselves. Do you think we live in a free market economy?
Originally my question to you was тАЬdo you think that current global systems are fair?тАЭ then I narrowed it to be more specifically the about economic system. Equally important and related questions surround the fairness of political, educational and judicial systems. If someone wanted to control power and wealth in a democracy the best way would be to design a system that appears to be fair and give choice, but in reality is guaranteed to the produce the desired outcome.
* I am including intellectual, theoretical and moral effort under this heading
I guess I agree that people have always and will always attempt to write the rules, bend the rules and if possible break the rules to their advantage. This is pretty much intrinsic in the Dilemma of Cooperation which has been such a headwind in 3.8 billion years of evolution. I further agree that rent seeking and privilege tend to grow over time in existing social structures.
Although I believe free market democracies are much better than all the other types of social organization tried so far, they have been and will continue to be under attack by those seeking privilege. This includes threats from above (elites), from outside (predator states) and from within (free riding, rent seeking, etc).
IтАЩm intrigued by your view on the dilemma of co-operation. I wouldnтАЩt necessarily see it as a headwind to evolution but rather as intrinsic to the тАЬdesignтАЭ. I think humans successfully solved the dilemma of co-operation tens of thousands of years ago. The nature of the dilemma changed about 12,000 years ago when the type of evolution and its driver changed. The winners became those who had the best social structures because power depended on social cohesion, and social cohesion depends on systems of trust and unifying narratives.
Corruption (cheating) is a breach of trust which is why it threatens social cohesion once it gets to a certain level. Why be honest and work hard when you see others cheating or just being freeloaders? Too many parasites weaken the host though and make it vulnerable to predators, so the balance will be restored one way or another. For a society to win this game it needs strong taboos or punishments to deter cheating.
Tomas and I had a conversation in the early days of Uncharted Territories about defining humanityтАЩs problems more clearly to help find solutions. My conclusion was that all the problems are тАЬmerelyтАЭ balance problems. Balance problems (e.g. inequality, fairness) will usually fix themselves eventually, just not in the way many people would like (e.g. war, revolution). I think one of the major balance problems in recent times has been the balance between co-operation and selfishness, but I see some signs of the pendulum swinging back the other way. I wonder if the rapid adoption of AI will push in the other direction , but I need to think about that some more before saying it with any confidence.
"IтАЩm intrigued by your view on the dilemma of co-operation."
Likewise, I am intrigued by your comments as well. Starting with the "headwind to evolution" comment, my phrase was alluding to the view that natural selection is about solving for genetic persistence, and that individuals can usually accomplish more together (by coordinating their actions) than they can alone. However, the dilemma of cooperation (as often illustrated by the Prisoners Dilemma) is that individuals can benefit MORE by exploiting cooperation (defecting). Thus genes are selected for being a bum, bogart or bully, which undermines all the logic for cooperation. When natural selection can solve for this dilemma (as in Nucleated cells, multicellularity, and insect colonies) we see spectacular success. Breakthroughs have been as rare as they have been successful, with these three separated by about a billion years each.
" I think humans successfully solved the dilemma of co-operation tens of thousands of years ago. The nature of the dilemma changed about 12,000 years ago when the type of evolution and its driver changed. The winners became those who had the best social structures because power depended on social cohesion, and social cohesion depends on systems of trust and unifying narratives."
My thinking on the issue is that proto-human foragers began to solve the issue through language and reputation, creating increasingly large and coordinated communities no longer dependent upon kin selection (inclusive genetic fitness). Humans were able to establish complex cultures which is a new type of cumulative knowledge, greatly separate from genetics. I agree with you that more cohesive groups dominated less cohesive ones, and that trust and unifying narratives (great term!) were essential here. I also agree that freeloaders (bums) and parasites undermine groups and that cheating needs to be suppressed for society and the individuals in it to flourish.
"My conclusion was that all the problems are тАЬmerelyтАЭ balance problems. Balance problems (e.g. inequality, fairness) will usually fix themselves eventually, just not in the way many people would like (e.g. war, revolution). I think one of the major balance problems in recent times has been the balance between co-operation and selfishness, but I see some signs of the pendulum swinging back the other way. I wonder if the rapid adoption of AI will push in the other direction , but I need to think about that some more before saying it with any confidence."
Could you explain further why everything is a balance problem? What about needs for energy? Needs for discovering solutions to new challenges? I am not following.
Just for further thought, I will add that cooperation and selfishness are of course not exactly opposites. One of the most important, indeed probably the most important, aspect to cooperation and coordination is positive sum actions which are good for all parties. The classic example is trade, where both parties gain something more valuable through the interaction thus improving the welfare of both individuals and of the group.
Connecting it all back to this original substack post, I believe that inequality can be a sign of a problem if rules are unfair or whatever. However, inequality of outcome can also just as easily represent the market signaling and rewarding changing behavior based upon supply and demand. IOW, drops in low skilled incomes (relative to capital or higher skill) can reflect either power imbalance, or the market signaling that there is too much lower skill and not enough higher skill. Fixing this imbalance actually weakens market learning mechanisms and makes the system and society duller and less dynamic, and thus more prone to elimination.
I donтАЩt think co-operation could be considered as a logical choice until logic existed. I would see it as just something that provided survival and reproductive advantage for individuals and species, so it was selected for even at very early stages of life on earth (as you point out, I had never thought of it in quite that way before). For humans, love and kinship are genetically-programmed, hormonally mediated ways of encouraging co-operation and trust. Genetic diversity is a key characteristic to species survival as it allows adaptability to changing conditions. Personality characteristics are largely genetically programmed (in both animals and humans) and are distributed in a roughly Bell- shaped curve. Evolution has selected for unselfishness*, but also for selfishness as under some circumstances (absence of external threat to the group) this will give survival and reproductive advantage. Some people will defect without a second thought, others will copy them if they see that defection is advantageous, some will use logic and decide if the balance of incentives is in favour of defection, for some co-operation is a learned behaviour, and others will just go with the rest of the herd. For a few at the other end of the personality spectrum their principles are more important and they wonтАЩt ever defect.
Social evolution has allowed the development of positive and negative incentives for behaviour that helps the group survive and thrive. The rules (written or unwritten) need to provide the right balance of incentives to be effective, but can be undermined without fairness of detection and enforcement. Some people will defect without a second thought, others will copy them if they see that defection is advantageous, some will use logic and decide if the balance of incentives is in favour of defection and some will just go with the rest of the herd. For some at the other end of the spectrum their principles are more important and they wonтАЩt ever defect.
The Prisoners Dilemma is an interesting theoretical exercise but in real life the situation is usually very different. Information about the other party (e.g. their reputation, trustworthiness, degree of loyalty) has already been gathered by the decision maker. Systems of trust have also been built up over time between the participants and these inform the decision making. There is no honour amongst thieves, so criminal gangs use threats of retribution (including threats against family or friends) to protect against betrayal. An ideological rebel prisoner might have much greater loyalty to the cause and to fellow conspirators so choose the co-operative option. Also, people often donтАЩt make rational decisions based on logic, they are influenced by emotions and feelings^.
тАЬHumans were able to establish complex cultures which is a new type of cumulative knowledge, greatly separate from genetics.тАЭ This is a really interesting idea and something I have been thinking about since Tomas started Uncharted Territories. Evolution appears to have become disconnected from the glacial pace of genetic change. Human social evolution took over once humans themselves became the selection pressure. More recently the evolution of ideas and technology has gained importance as has evolution in the corporate world.
With regard to balance problems, I was talking specifically about the problems of humanity as a whole, not those of nations, groups or individuals. Humanity has a broad range of genetic, personality, social and idea diversity to draw upon. Even if a large number of people developed a severe case of groupthink and decided to jump off a cliff like lemmings, there would be a survival reservoir of others who will not follow them. Some because they are resistant to change and risk averse and others because they are stubborn individualists who donтАЩt like being told what to do by anyone else.
The most important balance problem is the balance of power. The balance of power between different groups in a society will affect how well it functions under particular challenges. In wartime youтАЩd better listen to the military, in times of economic conflict the merchants/bankers are more likely to have useful ideas, during a pandemic it might be wise to listen to those who have expertise in viruses and public health. In post-war times the healers and those who understand spirituality will be more useful.
From the 1980s until 2008 the financial sector became way too powerful and there were negative consequences. The baton then passed to the technogeeks who think we should all live in a virtual world rather than the real one and that creating artificial brains is a good idea. This series of TomasтАЩ articles is all about the AI revolution and trying to understand what is likely to happen as a result. Who controls the technology will determine the way it is used and the early indications are that big business will be in control. That means the technology will be used to transfer and accumulate wealth.
The second most important balance problem is the balance of wealth (inequality level). Wealth is closely linked to power as wealth brings power, but you need power to keep wealth. Depending on how good the unifying narrative and the bread and circuses are, you need a large degree of power inequality to maintain a similar degree of wealth inequality. Otherwise тАЬthe poor and middle class, who vastly outnumber and outvote them, are incentivized to take from the richтАЭ and will do so. If you entrench power by corrupting democracy, the laws and the judiciary then the only option for change becomes revolution (though this can be relatively peaceful in some circumstances).
The specific discussion you were having with Richard and Tomas was about the impact on jobs and equality. My view is that for a variety of reasons macroeconomics is a poorly understood discipline and that there are better models available than those in common use. I think a flow model of wealth provides a more realistic understanding of what actually happens and I like the analogy of a semi-permeable membrane. Barriers between countries to the flow of wealth (the membrane) were historically things like geography, distance, hostility, language and lack of financial networks. In more recent times trade restrictions, capital controls, price controls and transaction costs impeded flow. Wealth is the thing that diffuses through these barriers slowly or rapidly depending on the size of the holes in the membrane. Eventually you get equilibrium where the amount of wealth is the same on both sides of the membrane.
Globalisation dramatically reduced barriers to the flow of wealth and resulted in global inequality plummeting with Chinese workers being a major beneficiary. In theory if this continued, the wages of a Chinese worker and a US worker doing the same job would eventually be the same. The problem comes from the fact that humans have strong loss aversion (the pain of loss is greater that the pleasure of gain) so if you try to pay a US worker less than before, then youтАЩre gonna get a riot (hang on a minute..,hasnтАЩt there already been a riot?). The US answer of course has been to use monetary inflation to cover up the problem, but by doing that you eventually run into the problem they have now. Creating money does not create wealth.
My view is that by definition, financial wealth is a relative concept so it isnтАЩt something that can be created or destroyed, it merely flows from one owner to another. There is always a loser for every winner and тАЬThus even as global inequality dropped, lower skilled labor became less valuable in developed nations. From a global perspective this was the beginning of the era of the greatest advance of human welfare ever in history.тАЭ Overall yes, but not for low-skilled workers in developed countries.
Evolution fixes imbalances by creative destruction and survival of the fittest group, so I often wonder when people talk about free markets if they realise that the rules of the truly free market are the laws of the jungle. Humans have spent many thousands of years working out better rules, but I think we still have a way to go.
* You are right to point out that co-operation and selfishness are not opposites. People will often co-operate with others and make alliances for purely selfish reasons. Others co-operate and put the needs of the group first because it feels right to them or they can see the logic of short-term sacrifice for long-term gain. I meant the tendency towards co-operation as a personality feature, so individualism is probably a better antonym.
^ One of my projects as part of my job is understanding the logic of emotions and feelings.
PS IтАЩm glad you like тАЬunifying narrativesтАЭ, I think itтАЩs an important concept. I canтАЩt recall if the specific phrase came from one of TomasтАЩ articles, but I certainly learnt a lot about the importance of stories from him so I canтАЩt take much credit for it.
Thank you for your considered and thought-provoking response.
тАЬHeadwind to evolutionтАЭ implies that evolution has goals which it is тАЬtryingтАЭ to achieve. I see evolution as a random process determined by the physical characteristics of the earth/universe not as a problem solving mechanism. Random mutations and events provide a survival or reproductive advantage so a particular organism thrives. If the advantage is a big one then that lineage comes to dominate its ecological space. Do you think evolution has a goal?