Mar 052009

To continue my study of the causes and possible cures of the meltdown, I want to discuss how there have seemed to be three different routes to making money.

I do this in the context of my general prediction for  over a decade, which  has been that the attention economy will eventually replace the money-industrial economy, in all variants, including capitalism. This means that money will eventually be outmoded. For an early version of this view, see here.

Attention Money

In the interim period, of uncertain length, I have suggested that money increasingly flows to those who get attention. It is simply that attention-payers (or fans) are willing to do much that attention receivers (or stars) want, including, often paying them or sending them money, or simply sending money to something such as a charity that the star supports. Thus attention that one receives is a draw for money, though exactly how much is always uncertain. Since attention itself cannot be directly quantified in precise numerical form, it is not possible to state how much attention is worth how much money. Still, the connection, though vague, is nonetheless real. Further, an attention-getter who loses what money she has gotten before is still in a fairly good position, most often, to cash in on her attention yet again, and recoup her losses.

Industrial Money

But what are these two other kinds of money? How are all three related? As I and others have said, money has  primarily been a way of keeping track of routine, standardized goods, services, labor etc. This because money itself is standardized, with one (current) dollar being just as good as any other, and the same for other currencies. (For most of its history, money, in the form of coins and bills was itself a standardized, manufactured product.) So industrial money is just money, used to buy goods and services, used to pay wages, used to allow comparisons between different kinds of goods, etc. When we think of money, this is what we tend to assume about it. Nothing new here.

But what happens when attention gains in importance as the competition for it heats up, through means such as the Internet? More and more, money becomes attention money. One effect is that ordinary wages begin to sink, relatively, since by definition, performing  an ordinary job, say in a factory, means getting very little attention. As it happens, I saw a YouTube video a few days ago, about clothing assembly workers in Bangladesh, forced to work very long hours for very low pay, only to be fired forever by the time they reach age about thirty-five  and are deemed by the managers to to be burnt out. Obviously the workers seen in  this video get more attention than the average third-world worker, or even many first-world ones. But still, even in the video intended to draw attention to these workers’ plight, the individual workers were not on the screen long enough even to be identified if seen again. Suppose one of them somehow manages to become an effective spokesperson in the west for her co-workers. Then that one worker would receive far more attention than all the rest, taken together, presently get, and might well end up in a very good position money-wise. But she would be an exception; for average industrial workers, down is the direction wages can be expected to go.

As I have explained elsewhere, consumption requires attention, and, as our attention is taken up in other ways, acts of consumption of industrialized goods and services are unlikely to grow enough to keep the world’s workers employed, which is another way of explaining the downward direction of wages worldwide. As automation, process design, and off-shoring reduce attention to ordinary workers, they also increase attention to the instigators and designers of these processes. So arises a vicious circle in which workers get still less attention and their wages relative to what stars can receive keep sliding.

The reason down-tending wages have not utterly destroyed the typical US standard of living in recent years is largely because of the existence of the third kind of money, to which I shall now turn. It is finance money.

Finance Money

Of course, finance has very long been a part of any money-based economy. Purely financial  transactions have been essential since at least, say, the 12th century, and in some instances much earlier, for such steps as: making loans necessary to carry out business; issuing funds in suitable amounts; buying and trading shares in businesses; allowing money to travel from some collection of it at point A to point B, where it could be utilized to buy something; insurance; and so on. Of course there has always been some amount of legerdemain tied into this, from desperate but clever ad hoc attempts to balance accounts somehow to knowingly false promises, Ponzi-like schemes and so forth. There have also probably always been a few operators who genuinely thought they had some great scheme to increase their or others’ wealth through sufficiently clever  financial transactions. At times, such efforts have had pretty large effects, but I suspect never at the magnitudes the recent financial debacle both resulted from and has revealed.

While there were out and out crooks — now exposed because the meltdown no longer gave cover for their tricks — more common were people who were simply over-confident, greedy, and insufficiently thoughtful about the seemingly clever things they were doing. The cleverness amounted  to finding ways to siphon off relatively small amounts from transactions made enormous by the computerization and speed of modern finance, as well as its complexity, openness to innovation and the like, all of which were fed by digitization and computerization of money transactions. If everything had had to be put in writing, worked out on paper, or sent at slow speeds from office to office, the complex monument to itself that finance has become could never have been created. However, recognizing that the speed of transactions and computations made a qualitative difference to what they were doing was never much of concern to to the financial players. Anyone who stopped to consider that, like a baseball player refusing steroids in the era before steroid use became testable and scandalous, would have probably fallen by the wayside.

Instead, through a variety of mathematical methods, clever programming, and the sheer speed of transactions, any number of traders, brokers, hedge-fund managers, analysts, and their ilk appeared even to themselves to be creating enormous wealth, essentially out of nothing. Those who did that best became a special kind of stars, financial stars. Even though known only to others within the fairly tight world of finance, the key innovators could make names for themselves and draw imitators as well as payments of the magnitude big public stars get. As long as we lived in that strange, somewhat phony world, the financial stars also received public acclaim, if not by name, then by a following based on the wish to emulate them, which was often to be accomplished by sending them,  or the banks and funds who relied on them, our own funds to play with.  Thus finance money, in a way is also attention money, although in the finance case, it is also the medium of stardom. Finance stars score up points in the form of money raked in in the same way that basketball players earn stardom through getting large numbers of baskets or assists.

The excesses of the financial world, though hard to justify on the basis of their effects outside finance, certainly did have some such consequences. The most obvious example was the housing built under the crazed conditions of the housing bubble. That meant construction jobs, etc., which did buck up the underlying industrial economy. But it is unlikely that the finance money will roar again anytime soon, if ever. All the attempts to bail out the major banks so that they will lend again I strongly suspect will not work. We still don’t know how to unwind the banks form the vast variety of complex financial instruments and indeterminate debts that they have accrued. If all legitimate  monetary deposits could be transferred to new, smaller banks, that might set banking back on a sounder footing, but it would still be a footing in which the fear of issuing loans would be much heightened. And with good reason, foe  growing percentage of possible borrowers would have little or no reliable collateral; with housing prices, stock prices, and secure  jobs all plummeting who is a reliable borrower? The newly sound banks would have smaller overall assets and more stringent debt limits, so they couldn’t even loan out as much. The economy once shored up by debt now can no  longer be. (By the way the call to nationalize the banks, using as a model what  Sweden did some years ago, is unlikely to help because Sweden operated within a more or less stabel European banking in environment, and the US is far too big to operate inside any kind of outward stability; if Citigroup and AIG were “too big to fail,” the US is both too big to fail and too big to succeed from this starting point. )

Meanwhile, no one dares be so profligate as the finance wizards were anytime soon again. The unregulated reliance on fancy mathematical formulations has probably received its death knell. But still, I think, no one has that much of a clue how such elaborate financial complexities can appropriately  be regulated. These are temptations that any system of transferring money, with any kind of even temporary  provisions for lending will now be prey to. As computing power and Internet capabilities continue to spread, more and more people will be in the position to manipulate money or anything replacing it as some sort of currency/indirect barter. How can all such efforts be prevented? Only by our ceasing to trust money at all, or ceasing to use it in transactions, which amounts to the same thing.
Finance money quite possibly has disappeared into the dust, never to return. But finance money, of course, is (or at least was) money, in that, for instance, the bonuses received by bankers could be used to buy whatever they wanted. That is going, or gone, as well.

From the Blank Checkbook to Facebook “Feudalism”

If money becomes less reliable or less useful  to prop up the standard of living, we would be heading fast for a pure attention economy, in which goods and services flow directly to those who have attention from those who pay that attention and who somehow provide the services. Making goods for the attention getters would also be forms of paying attention to them. In an arrangement that bears a bit of resemblance to feudalism , the attention payers will have to tie themselves to the stars in order to get any attention , including the material attention they need to live. This would not be as simple as feudalism though, in that each fan will be tied to numerous stars. The fans who do things for stars will also be called upon by these stars to do a certain amount for their fans. The world will resemble Facebook, with fans “friending” stars in large numbers, and in that way connecting too to one another.

All this is a very abstract sketch of what might happen. The details have to be filled in by further social invention. Because of the Internet, that filling in might happen rather quickly. What the world will feel like in detail when (and if) the dust clears is hard to say. Will we have restaurants, supermarkets, private houses, governments, police forces or what? Perhaps nothing that looks particularly like any of these, but instead a host of new,  not yet imagined institutions that somewhat substitute for them.  It’s too early to say for sure.