The Nebulous Kingdom

In a world of massive externalities..

3/8/2010

Comments

 
There’s a term used in philosophy and social psychology - “positivist” - which, according to Wikipedia, is a perspective which “holds that the only authentic knowledge is that which is based on sense experience and positive verification.”  This perspective is obviously aligned with the principles of science and has held sway throughout the twentieth century.

Today positivism is considered in the halls of social science as narrow, limited and really a bit antiquated.  So I find myself and my modes of thinking a bit antiquated, since I can’t manage to subscribe to deconstructionism, postmodernism and the host of other –isms that have taken over.  I understand their impetus but not their usefulness.

And I wonder whether it is time for a new perspective, one that can encompass the vast amount of uncertainty we face, in a “real” as well as emotional, psychological and social sense, while being of use in navigating the world and our lives.

I think of this in the context of externalities, or referring back to Wikipedia, spillovers of an economic transaction that have “an impact on a party that is not directly involved in the transaction.”  I had a pretty good foundational education in mainstream “freshwater” economics, one based on theory and models and which would be considered quite positivist.  In mainstream economics, externalities tend to be a side topic that is often assumed away as minor or localized.  Nowadays, however, externalities seem – well, important.  If you look at some of the arenas where the United States is failing miserably relative to socialized nations, i.e. non-university education, health care, environmental issues, these all have sizable externalities.  Socialized systems have made implicit decisions about what negative externalities are untenable and instituted a policy net of seemingly minor moral hazards.  When negative externalities become so large as to be untenable, such as the systemic failure of the financial system, then we institute moral hazard in the form of bailouts.  And then we try to install a morass of regulation to mitigate the moral hazard we’ve created, likely triggering - in a host of ways we’ve yet to discover – the Law of Unintended Consequences.

The intertwining of the global financial system is perhaps just an example and a metaphor for an even larger trend towards interconnection and increasing externalities.  After all, as we live more closely in urban mega-cities and interact more regularly over the internet and web-enabled mobile devices, it makes sense that both positive and negative externalities – that is, the impact of transactions on parties outside those transactions – would increase.  In this world, the price mechanism fails more often.  Our models fail more often.  In this world of increasing uncertainty, where positive verification isn’t to be had, the positivist view seems less useful.  This is important - once externalities gets to a certain level, it seems inevitable that our society will try to gain greater control of its constituents, to avoid inflicting the social cost of negative externalities or incent behavior which results in positive externalities.  This points to a trend towards greater regulation and loss of individual liberty.

Unless – we can think of a new way of looking at things, a mechanism to complement the price mechanism when it fails.  Some have suggested a reputation mechanism, though we haven’t attained the level of connectedness and transparency to make this efficacious.  We should perhaps start thinking about this though…
Comments
    Picture

    Author

    I'm interested in uncertainty, time, trust, consistency, strategy, economics, empathy, philosophy, education, technology, story-telling, and fractals.
    Contact

    Archives

    May 2016
    October 2015
    September 2015
    June 2015
    January 2015
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    September 2013
    August 2013
    May 2013
    April 2013
    February 2013
    December 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010
    December 2009
    November 2009

    RSS Feed


    My Favorite Curators


    Email newsletters

    Edge.org
    John Mauldin
    STRATFOR
    Futurity.org
    BPS Research Digest
    Domain-B.com
    FORA.tv
    PopTech!
    PIMCO Investment Outlooks
    GMO Client Reports
    Big Think
    Commonwealth Club
    Someecards.com
    MRN Research Papers
    Chicago Booth eNewsletters
    McKinsey Quarterly
    Boldtype / Artkrush
    Singularity University
    Charlie Rose
    The Aspen Institute


    Feeds

    WNYC
    Radiolab

    This American Life
    Freakonomics Radio
    The Moth
    Chicago Booth Podcast
    The Atlantic Council
    The Memory Palace
    TED.com
    Foreign Affairs
    The Ideas Project
    Long Now Foundation
    The School of Life
    Letters of Note

    Periodicals

    The Economist
    The Wall Street Journal
    The New Yorker
    The New York Times
    Wired Magazine
    The Atlantic

    Other Websites

    Oaktree Capital Memos
    LSE Public Lectures
    Bubblegeneration
    Becker-Posner Blog
    Eric Von Hippel
    NetAge
    John Seely Brown
    Malcolm Gladwell
    John Hagel
    HBR – The Big Shift
    LookBook.nu
    Robert Shiller
    Paul Graham
    Frontline PBS
    Royal Society for the Arts
    Blake Masters

    Humor

    Best of Craigslist
    Texts from Last Night
    FMyLIfe
    MyLifeisAverage
    Lamebook
    The Onion


    Categories

    All