Saturday, October 15, 2011

A Dogma fight on Wall Street

Some people involved with Occupy Wall Street might say that we should end Capitalism. The Tea Party rails against Socialism. Myself, I think to move forward constructively we should stop looking at the world through glasses tinted by such dogmas. I think it would be useful to see how the world appears if we try to step back as far as possible and try to build up an unbiased opinion of the problem using as little as possible of our preconceptions.

Economics is human behavior. Politics is human behavior. Government is made up of humans and these humans behave like humans. Corporations are made up of humans and they behave like humans too. It doesn't matter what the underlying political system or economic system is, people will behave like humans, colored by their culture and personal variations from the norm. Much of human behavior is constructive and good, but in some situations normal human behavior can be bad, because we are subject to so many cognitive biases which distort the way we interact with the world. So is Government inherently bad? Are corporations? Sometimes either of them can do bad things, but they also sometimes they do act constructively. I think the idea of either of them as The Problem prevents us from seeing where the real problems lie. I propose that the real problems are not evil governments or evil corporations but certain kinds of human behavior which need to be kept in check for us to all get along constructively. Two which I would put forward as non-constructive are over-centralization and entrenchment.

The Soviet Union is a good example.  Was the Soviet Union a bad idea because it was communist? Maybe, but I think a more constructive way to look at the Soviet Union is that their communist system encouraged over-centralization of control, so important decisions were usually made far from where the impact would be felt. The system also allowed, even encouraged, the most powerful of the communist party to entrench themselves in their positions in the hierarchy, blocking off all courses of change for the better. The system finally broke down when one brave man managed to work his way up the entrenched hierarchy who was disenchanted with the system. Gorbachev proceeded to undermine the centralization and entrenchment which led to the break up of the over-centralized Soviet Union. Things aren't perfect now, but there is more possibility of change without the massive power structure of the USSR.

These principles apply to many governments around the world. Certainly dictators like Gaddafi or Kim Jong-Il fit the picture of deeply entrenched powers in control of over-centralized decision making. However these are not strictly governmental behaviors, these are natural human behavioral tendencies. They happen in business as well. With a small business centralization is not necessarily a bad thing, particularly if the business is small enough that the boss knows every employee. As the size grows to a large corporation factors come in to play that lead to over-centralization.  Everyone in a large corporation has seen people who try to entrench themselves into their positions in the hierarchy. When the tendency toward over-centralization or entrenchment happens internally to the corporation, it's really the business of that corporation. If they saddle themselves with an entrenched over-centralized structure some more flexible corporation is liable to come along and compete with them. The problem arises when these tendencies apply outside of the corporation.

A monopoly is a classic example of entrenched over-centralization, all of the power over a certain market gets centralized in one corporation and they are so entrenched that it is impossible for another business to get to a position where they can compete. The sort of entrenchment and over-centralization which gives corporations excessive power over markets is everyone's problem.

Instead of viewing Wall Street as the antithesis of the Soviet Union the way most people do, I see them both as having the same disease. Our financial systems are over-centralized, concentrating too much power in too few corporations. Those corporations, and the people who run them, have entrenched themselves into positions of power so deeply that it is hard to dislodge them.  The people in corporations who exhibit the entrenching and over-centralizing behaviors are just as human as politicians who exhibit the same natural human tendencies.

If you call it a capitalism problem or a socialism problem it prevents you from seeing the fact that it is indeed a human behavior problem. In certain situations humans tend to exhibit these behaviors so we need to set up a structure which counter-balances that tendency. Just as we need traffic laws to keep everyone's driving in check and make the streets safer for all of us, we need some rules of the road for our economic system which keeps Wall Street from exerting so much power over the rest of us.