Michael H. Goldhaber

The war between Google and Microsoft is really heating up with Google’s promise of a new operating system and Microsoft’s new bing or ping or whatever it is. Out of sheer lazniness in trying Ping, I searched an article I wrote a decade ago in Wired. In both google and bing I found a Polish article referring to my work. Each search engine allowed a translation. bing’s was “As Michael Goldhaber: the importance of our lives is expressed, which spend us other. Without devoting attention life would be worthless,” whereas Google’s was “As Michael Goldhaber writes: The meaning of our life is a criticism that we spend more. Without attention to the force would be negligible .” Quite a competition, wouldn’t you say?

As nearly as I can tell, what I actually said was “Meaning is conferred by others through paying attention. Without attention life is not meaningful.”

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.

Item: In certain places, bar and bat mitzvah celebrations had become intensely competitive, with parents generally responding to kids’ needs to up the ante by spending ever-more money on more lavish and far-out parties. According to a recent report on the public radio program, Marketplace, that included having the celebrant jump through a hoop of fire or be escorted thorough a Polynesian -themed entrance by scantily clad dancing girls. In this competition for attention, the rising sensationalism meant on average no kid would get more attention than before, but the arms race was hard to stop.

And all that spending, mostly on locally provided services, was stimulative to the American (money) economy. Now, however, just when more stimulation is apparently needed, it has become more attention-getting to desist from the arms race and offer an obviously less lavish and expensive and altogether more sober sort of event, one that seems to fit the down-sized times. It just does not do to be too ostentatious in spending in the current recession (or depression). From the point of view of the capitalist economy, this is too bad. Now is when a stimulus is certainly most needed, and people who can spend, it could be argued, have a good citizen’s responsibility to do so.

Item:As the shenanigans in Washington over the stimulus package reveal, plenty of people still can’t get their minds around the idea that spending is needed to revive the economy — assuming it can be revived. President Obama, in my estimation, is himself only partially convinced of this necessity, and therefore has yet not done an effective job of convincing the wider public. He keeps appointing people who also are more culpable than corrective in changing the tide. The dual (if absurd) messages that people on Wall Street deserve high pay for their hard work —much higher of course than many other hard workers — and that saving is better than spending, that in fact too much spending seems to be what got us into this mess, collide and produce cognitive dissonance that leads to fear and inaction.

Item: workers of all kinds in China will work for much less than their US counterparts. Why shouldn’t the banks set up all their operations in China, and why shouldn’t President Obama hire Chinese economic advisors? I’m sure the latter can give just as mediocre advice as he’s getting at higher prices now.

Item: as I just said, workers of all kinds, including high qualifications are available in China and can do anything American workers can do. It’s great for the Chinese if they are employed even at their low wages, but it would be horrible and impossible for Americans to try to get by on such small wages. This is the folly of globalization. It wouldn’t be folly if there were an unlimited need for workers, but rising productivity means that is not so.

One of the things that makes the typical American economist so mediocre is the assumption that we can “get back” to steady growth for all infinity, if we only correct for ecological problems (that part’s ok). This hope ignores that we cannot sensibly consume infinitely much, so that rising productivity eventually has to cause problems. Even in a world in which everyone has a good income, in which institutions and cultural preferences and technical limitations do not limit consumption, the scarcity of attention eventually would do so. But in the real world, where incomes are already decidedly unequal, where most of the world has in fact lost ground as a result of the breakdown of ordinary agriculture as more productive western agriculture has replaced it, and where factories , etc,. get more highly productive all the time, the limiting consumption point has quite possibly already been reached. The average Chinese probably would not want to consume at the American level, or even imagine doing so, and all sorts of barriers anyway prevent that. For the world’s devalued peasants, the idea of huge consumption is still further off scale.

Actually, the turning point was some time ago, I suspect. What kept us from noticing was precisely the overheated financial sector here in the US. The Internet and the like have greatly speeded the rise of the attention economy (in my sense) but it has also made possible a vastly overheated financial sector in which large volumes of money running through could be slightly diverted in order to set up apparently substantial profits that were little more than gimmicks, even if unintentional ones, but these gimmicks for awhile were also justified in issuing mountains of loans that allowed the average person to buy much more than the average declining income would have made possible. That fed, for instance, the credit card binge and the mortgage binge that led to ever higher home prices, leading to ever more toxic mortgage deals, etc. But the collapse of that house of cards just reveals the deeper underlying problems of a bereft capitalist economy. As US consumption was what kept the entire world economy afloat at the level it was, our fall now cascades into others’ economies as well. Pulling the whole world out of it is going to take much more than has ever been seen before, and I don’t see how that more can be more capitalism as usual.

As stock prices sink and profits plunge, the firms that survive will be the ones that continue to increase productivity the fastest, which means shedding even more jobs.

Item: The bailed-out banks have been loathe to lend money to ordinary consumers, because most of them are maxed out on their credit anyway. But the same banks were willing to form a consortium to lend bailout money to Pfizer to buy Wyeth, which will lead to 14,000 layoffs, and that fact might be just waht gave the banks the confidence to lend. So much for the bailout helping keep jobs.

Many economists cheerfully believe that the US can recover its former more advantaged position by developing a more educated workforce which will more design rather than produce goods. However if the idea is that these designers will be able to command a premium for their services on the world market, that can only come about if their designs all get attention from a large part of the rest of the world. In other words, to have what passes for a high material income in an attention economy you have to rreceive a good deal of attention, in this case thorugh your designs or for your share of whatever project you are involved in designing. And there may not be (or, rather, isn’t) enough attention to go around, doing that). Actually, of course these high attention-receiving workers need not be designers; they can be novelists, movie directors, singers, sports stars, and so forth, just as well. But still, comparatively very few of these will get the bestseller kind of attention that is needed.

And other countries’ citizens will be good at starring in these ways too.

The more the old economy sinks under the weight of too high productivity and thus tremendous overcapacity, the faster will be the move towards the attention economy, as more and more people make use of the Internet to vie for attention in new ways. The vast majority of people will find themselves, in effect, to be fans, if they are not chiefly that already. But they will sink in to despair even as fans unless they feel the stars will somehow take care of them. So it is incumbent upon stars who want any kind of a stable world to worry about a pattern of goods distribution that continually improves life for those at the bottom, and does so in more or less sustainable ways. This is what we must try to flesh out, I think, if there is going to be any sort of desirable human future.

In response to my comment on Kelly’s  blog post he asked:

“Michael, do you have a sense of under what conditions attention does not pull money along? You mentioned infants and terrorists. Don’t infants eventually get money from their parents, and wouldn’t terrorists get money if there was an easy way to pay them?”

I replied

Kevin, in reply to your question about when money does not follow attention: when money is not especially wanted or sought; when there is no suitable channel by which to convey money; when the person getting attention — JS Bach, say, or a suicide bomber — is dead.

In general, attention is often desired for its own sake; if you go to a karaoke bar with friends and start singing very entertainingly, you may get attention and applause, very gratifyingly, but not usually money.  In any circle of friends or colleagues, a few may get a lot of attention, but this does not generally translate into money, though non-monetary favors of various sorts would be common.

As new forms of interpersonal connection on the Internet and the like  (texting and Twitter, e.g.) proliferate, I think more and more of those we pay attention to will be hard to distinguish from friends, and handing over money to where our attention goes may seem increasingly odd under normal circumstances.

MIchael

Kevin Kelly’s blog recently cited my work, in piece called “Where Attention Flows, Money Follows”

My comments:

“HI Kevin,

“Thanks for the citation of my work. You always find neat ways to put things. As the old adage goes ‘Build a better mousetrap, and the world will beat a path to your door.’ People who want to see more recent thoughts of mine can start with my blog http://www.goldhaber.org  Details on what attention is and how it works can be found at http://www.goldhaber.org/wp-contents/uploads/2007//Chap_3_3.19.07.pdf

“A few caveats on your piece:

“1. Money doesn’t always follow attention, and often people just want attention for its own sake, not money. For instance, they write letters to the editor. Or they comment on others’ blogs. Babies are very good at getting attention; money doesn’t necessarily follow. Terrorists get lots of attention, which gives them followers, but not necessarily money. And so on.

“2. Consuming stuff takes attention. The more attention we pay to messages that are not related to selling us stuff, the less ability to and interest in consuming more things.

“3. Ads work only when they get us to buy something. As the Internet grows and captures more of our attention (see my ‘The Web as Black Hole’ http://www.goldhaber.org/blog/?p=127 ) ads will eventually not bring enough money to cover everything, or not very well. Many web sites just ask for money directly.

“4. I still think money is not fundamental to the pure Attention Economy to which we still seem to be headed. I have attempted to develop an index that allows comparison of different types of economy, according to which the AE is already much bigger than the money economy. See http://goldhaber.org/blog/?p=80 . Also, the money econmy is now in trouble. See http://goldhaber.org/blog/?p=129 .

Best,

Michael”

In the book, “The Hyperlinked Society,” which I read at Michel Bauwens’ urging, there is an article by Martin Nisenholtz of the NY Times extolling that publication’s all-out push to integrate with the Web. To some degree they have done a good job, but one thing they do terribly badly is exactly their use of hyperlinks.

I do not know the mechanism, — it could be ten-year -old children of the webmaster, underpaid workers in India, or some completely automated process —  but the results are evident. In every online Times article you can find  a sprinkling of hyperlinks that, if you follow them, lead you completely astray, having nothing useful to do with the article in question.

Case in point: Clive Thompson has an interesting article in this week’s Magazine:“I’m so Totally, Digitally Close to You,” (though the web title is “Brave New World of Digital Intimacy” —much worse). It is about the ways in which Facebook’s newsfeeds and services such as Twitter allow wide circles of friends and acquaintances to update you in tiny bites about their latest doings, such as making sandwiches, and about the effects of all this in increasing a sense of intimacy. One sentence reads: “Ambient intimacy becomes a way to ‘feel less alone,’ as more than one Facebook and Twitter user told me.” The word “ambient” is used here as an adjective, indicating the enveloping quality of these new connections. But in the Times online, it is hyperlinked. To a definition? No. Rather to articles in the Times on a company called Ambient Corporation that is engaged in trying to make the electricity grid more responsive and green.

This is annoyingly stupid. Why would authors want to have attention turned away in this manner from what they are writing?  A simple solution would be to give each article’s author veto power over these argbitrary links. At present they are just a minefield readers should avoid. If the Times is patting itself on the back for this egregious and ongoing blunder, it shouldn’t.

Dear Readers,

For too long, comments have not worked on this site. That happened because of my lack of technical knowledge and too much comment spam coming in. I think I’ve fixed those problems. So please comment now. (I will still moderate comments.)

Best,

Michael

“Links are good. I believe that.” So begins David Weinberger’s argument  [p. 181] on the morality he sees embedded in the hyperlinked structure of the Web. His is one of the more interesting contributions to a book based on a conference entitled “The Hyperlinked Society:Questioning Connections in the Digital Age”, edited by Joseph Turow and Lokman Tsui. (Michel Bauwens suggested the book as something I might be interested in commenting on. So I read it and now I ‘m commenting.)
Weinberger’s argument  would, I think, also apply to telephone wires in the days before wireless. They allow us to communicate with one another, and in so doing  extend our awareness to the concerns of others. That makes the structure of the Web (or telephone system) commensurate with the morality of the Golden Rule, which he parses as follows: “We share a world, that world matters to others, and the fact that it matters to others matters to us.”
In other words, by following (hyper)links, we can learn what matters to the person who put the links on her web page, which will lead us to act differently, presumably, than we would without knowing that. And not only differently but more morally. Of course, the new web page probably has links as well, put there probably by the different person whose page that is, which leads us in an an endless spiral, at the end of which we would have learned what matters to everyone in the world, or at least everyone on the web.
Each hyperlink, thought of in this way, then, is a means of directing our attention from the person or persons who had it to someone else who had theirs. This passing along of attention can happen in many settings other than the Web. A friend of yours says “you’ve got to read this book,” or this article, or see this TV show or movie or art exhibit or taste this chef’s cooking or whatever. Or maybe it’s not a personal friend who says this but Oprah or Jon Stewart on their respective TV shows. Or any of them simply introduce some person new to you who you meet face to face, or see stepping onto the stage in front  of the TV star’s audience.
Only, if you have enough friends, you can’t possibly direct your attention to everything they suggest you should; likewise you can’t possibly follow the nearly infinite trains of hyperlinks to find out what matters to each of the vast majority of people on the web. If it would be moral to do that following, then perhaps, your intrinsic inability to is a new form of original sin. If you were God, perhaps you could attend to everyone; as you’re a finite person, you can’t. Either the Web makes us all sinners, or something is silly or wrong about Weinberger’s argument.
(His argument is even more all-encompassing than the non-Web examples I’ve offered. Your friend might be into orchid growing, frisbee throwing or stamp-collecting, but if she knows you’re not, she is unlikely to try to suggest books to read on the subject. But if your friend has a website, it might very well include links to such things. These things after all matter to her. But is it really the case that the Golden Rule would make it incumbent upon you to study such things? I suspect not. The Rule, correctly applied, I would think, would make it incumbent on straight people to grant gays the same rights to marriage that straights have long enjoyed, but it wouldn’t require straights to understand or even try to understand just what is attractive to gays about members of the same sex. Lots of people love sky-diving; I don’t have the least desire to find out for myself what this feels like; I might be immoral if I tried to forbid them from doing this or knowingly did something that interfered with their safety, but there would be nothing particularly moral, I think, in my trying to imagine or experience directly what jumping out of a plane feels like. )
So I don’t think it has been settled that the Web is intrinsically good, though it’s obvious that most people do enjoy what they find on the web. If it is good intrinsically, then either its users should become noticeably more moral than non-users, or its rise should clearly make the world a better place. If it could be  convincingly shown that the Web’s presence improves the chances for world peace, for  human rights, for environmental protection or other clear moral goods, then the Web could plausibly be called good in itself. Neither Weinberger nor anyone else writing in this tome offers any such assurances, at least not in any way I find believable.

MORE on this book to come……

Why should we elect Obama? One obvious reason is the mess the American Economy (as traditionally defined) is in right now.  Does this mean that Obama and his economic advisors will come up with good plans for reviving the economy and preventing a further slide? I suspect they would do better than McCain and his crew, but also that they will not be very well equipped themselves to understand the real problems. They come from the University of Chicago or at best are of the Robert Rubin-Larry Summers school, which in my mind makes them more part of the problem than the solution. Still Obama, if elected, will have a huge positive impact, I suspect. Let me explain, starting with a bit of history.

The Post-war Surpluses…
After World War I, the US became the leading world economy in conventional terms. This status was considerably strengthened after WWII, which had mostly destroyed other advanced economies, while building up huge reserves of demand everywhere, demand which US industry alone was in any position to satisfy. The US ran a long trade surplus, partly because it stimulated trade by foreign aid, particularly via the Marshall Plan, which aided Western European recovery after WWII. The trade surplus helped promote good factory jobs, and the money earned through such jobs filtered through the rest of the economy, keeping employment fairly robust. This was further aided by high military spending, along with other government spending such as on the race to the moon, which was often financed through borrowing.
The Deficits that Followed …
However, by the 1960’s, with the lengthy Vietnam War and a continued growth in optimistic government programs, government priming of industrial efforts expanded too much, and a cycle of inflation commenced. That problem was added to in the early ‘70’s by the formation of OPEC, which led to an abrupt rise in oil prices. That led in turn to a US balance-of-payments deficit.
Now, a strong argument can be made that a balance-of-payments deficit resulting simply from high oil prices is not much of a problem; the OPEC countries were just taking advantage of a situation they had relatively little to do with, since the oil coming out of their territory they usually didn’t even directly do much to produce, leaving that to western companies or contractors. Their spending on luxury goods or armaments or their “recycling” the money to the US by investing in US businesses only enriched some Americans at the expense of others. (In fact, to the extent that the US was the main recipient of recycled oil payments, it might even have benefited from payments made to the OPEC countries by other oil purchasers.)
The main effect in the US, then of the initial oil shocks was to redistribute money mostly upwards from factory workers to investors. But since a large portion of US investment is channeled through institutions such as pension funds, non-profit foundations, university endowments and the like, the riches from abroad were distributed more widely than to a small investor class.
However, the combination of inflation of wages through union contracts and higher oil prices caused profits from domestic industries to stagnate or fall. Then the heads of the institutional investors such as pension funds, along with bankers who stood to profit from recycled oil investments and other capitalists, pressed for a combination of measures. These included restraints on unions and higher productivity, or failing that, moving  production offshore to lower wage countries. The wealthy and would-be wealthy also pressed for lowered taxes for themselves,  In addition, a relative fall-off in US innovation led to big gains by exporters from countries such as Japan.
All of this increased the balance-of-payments crisis, since now (that is by the 1980’s) not only raw materials, but also manufactured goods were coming from abroad. How was the US able to sustain this continued trade deficit? One main reason was that the flow of attention to the US was and remains very large, though it is now shrinking fast.
The Attention Economy to the Rescue…
Being tied together via advanced communication (i.e., attention) technologies, the US is a huge and mostly inward looking audience, which means that US stars have a built-in advantage in dealing with the outside world. The larger one’s existing  audience, the more attention outsiders are likely to offer. This advantage is compounded by the fact that English, spoken as a first language by more than half a billion people, it is a second language for many hundreds of millions if not several billion more. In addition, creators in the US have figured out how to make action movies and video games that attract even across language barriers to a surprising extent.
Being  a fan makes you feel part of the most visible fan base; it also makes you eager to please the stars you care about. IN the case of American stars on the world stage, their existence exalts the whole country in the eyes of others. The net outflow of payments in money was counterbalanced therefore by a net inflow of attention payments. This meant foreigner were eager to get close to the stars by various sorts of loans or investments in the US, with Japanese investors at one point buying up Rockefeller Center in NYC and Arab investors buying stores such as Saks Fifth Avenue. Neither of these probably made a great deal of sense as strict monetary investments, but they made much sense as homage to famous and star-used institutions. In addition, living in the most advanced attention economy has come to mean living with few restrictions on expressions and a ready fan base for new stars, even if they come from abroad, in whatever field they happen to be. America now depends on this openness to maintain its place in the world.
….. But Then Came W…
All that has been eroded by  Bush administration policies, however. Its invasions of Afghanistan and Iraq, its use of torture, its condemning prisoners to Guantanamo, as well as its resistance to immigration, has eroded, and if it continues, will further erode the US attention advantage.

…So Now we Need O.
Due to his race, his personal background, his intelligence and relative youth, Obama’s election, just by itself, will markedly change perceptions of the US. If he is bold enough to follow through on his promises to change foreign policy, especially  around Iraq and  in terms of increased diplomacy, as well as in areas such as global warming, he will greatly increase the world’s willingness to pay attention to everything American. The 200,000 person crowd he attracted last week in Germany, plus the excitement about his candidacy in much of the world already attests to this. He may be a “rock star” but that is just what we need.

Crash-free No Longer

In a recent post, I discussed the current problems re sub-prime mortgages and the credit crunch in connection with ignorance in high finance and in general. The complex entities that are investment banks, which were supposedly highly knowledgeable as organizations, actually were quite in the dark, quite ignorant in fact, when it came to the mortgage problems. I argued that someone has to be knowledgeable and interested for a problem to be understood — some specific person, that is. An organization that has no one paying attention can’t function in a knowing way, in other words, and as we move further towards an attention economy, there are additional reasons to stay ignorant of what is not essential to grab an audience at the moment. As I was thinking about those issues, it occurred to me that there seemingly was a clear counter-example, namely the complex organization that is responsible for the fact that there have been no major US airline crashes since 2001.

Now, airline crashes are prevented by a combination of knowledge of what keeps planes airworthy and prevents collisions, and this knowledge as embedded in a mixture of physical  instruments, physical mechanisms and careful adherence to complex inspection and control protocols that make sure the instruments and mechanisms  are in good working order and are used correctly. But this too does not happen without there being dedicated people who pay attention to keeping all these protocols actually functioning. In the piece I was drafting, I was going to write that if no crashes occur over a long enough period, inevitably attention will shift and the the protocols will stop being followed so assiduously, so that eventually further air crashes will  occur, even though we now apparently know extremely well how to prevent them. We will lose that knowledge as active knowledge  over the course of time, because we just won’t think we need to know it if we never have crashes to remind us.

Well, it now turns out that in fact this disintegration had already begun. Luckily enough, there was enough redundancy left  in the inspection system — apparently, in this case Congressional oversight— for someone to notice that the chief federal agency in charge of airline safety had stopped doing its job. In fact, the successful period of no crashes was already the result of past momentum, not current care.  It could be that the alarm caused by the recent revelations will keep someone connected with the system making sure for awhile that it holds together, but for how long? Currently, American Airlines is in financial trouble and passengers are very annoyed because many flights have had to be canceled while forgotten inspections are finally performed. How many times would this have to happen, before passengers would insist that inspections are not really necessary? The inspectors in this way might eventually be forced to be more lax until an actual crash occurs. You cannot have knowledge without attention, but the need for attention also promotes ignorance, as I showed earlier.

Pfffffffft

Meanwhile, what of the financial system? Could it be that the “masters of the universe” who run it are so ignorant of the actual workings of what they do that a much more complete meltdown than has already taken place is possible? (After I drafted this very post, I learned today that George Soros has just come out with a book proclaiming the breaking of a super-bubble in the money economy.)  Why the possible meltdown? What would the ramifications be? As with the Enron collapse, and as with the recent sub prime debacle, the people running things seemed awfully smart and knowledgeable until it turned out they had vastly overestimated their own knowledge, or at least convinced others to overestimate it. That can happen, perhaps, to the whole current financial system. What has happened is that just as the Internet in the broadest sense permits all sorts of new social inventions with unpredictable effects, such as Facebook, it also permits a wide variety of new financial inventions,  which in reality do nothing but allow money to be moved around in new ways, and perhaps merely create new, purely numerical wealth, wealth that can certainly be turned into goods, but which stems really from nothing other than mathematical legerdemain with various complex financial instruments.

If we look at the apparent growth of the US economy since 2001, it is quite possible that most of the so-called additions to  GDP were actually only growth in the “products” of financial firms, as measured by their overall earnings. In this case no real extra anything — except numbers — was actually created. Furthermore,  these numbers only have value to the extent that the “instruments” behind them remain sufficiently credible to enough players. In other words, financial performance can be viewed, increasingly, as indeed a performance, a form of theater, which works only while there is a sufficient “suspension of disbelief” while the audience is transfixed and mesmerized. If and when that stops, the air can just go  “pfffft” out of the balloon, in much the same way as it did for Enron.

Nowhere Safe to Park?

The new rich, the old rich, plus things like university endowments and standard pension funds —  and other forms of insurance for that matter, all have to “park” their monetary wealth somewhere. Mattresses are decidedly out of fashion, since they don’t keep up with inflation. Of late, the parking lot of choice has been more and more in these new financial forms — hedge funds, buyout firms, or other exotic schemes. The alternative is mostly more traditional forms such as corporate stocks, mutual funds, bonds or even government-backed bonds. None of these is actually secure, at present. Nor, by the way, are even the more old fashioned holdings such as gold. (Gold retains its worth only if the industrial world swallows it fast enough, which requires a high level of industrial production.) Because finance is now such a large part of everything, all these supposedly reliable old-fashioned forms of wealth can fall if the financial sector falls far enough. Hedge funds and buyout firms very much need leverage in the form of extensive borrowing, but if there is no assurance suddenly that they can pay back, the value of these funds can quickly disappear. But if that happens, ordinary stocks, also based on confidence in future performance are much more vulnerable now than in the past. Very few firms simply are made up of solid assets such as factories that have fairly definite break-up values. Instead most firms today rely on the promise of innovation yet to come to retain their current value. (For all stocks, there is a ratio of price of the stock to current earnings that is often of the order of 20 to 1. That means that for an average  investor just to break even, the stock will have to pay out the same earnings for twenty years, or alternatively the profits will have to grow over a shorter time frame. In today’s world, twenty years is a very long time horizon. Meanwhile while shorter-term growth is always risky to assume, and especially so in a downturn of any duration.)

Also, current stock valuations are very tied into the workings of the financial sector these days. For instance, bankers are constantly flying first class around the world. If banks slow down, so do airlines, and numerous other related industries. Because we no longer have a (money-based)  economy that primarily produces things, and still less, fairly necessary things, a large part of it can become completely unstuck quite fast.
Since the US government, at least, has been run on substantial borrowing even during a supposed growth period, while facing increased payouts for social services such as medicare and social security even if it does nothing. So its indebtedness may become too great to pay off. There goes the reliability seemingly safe investments such as treasury bonds. Pension funds, increasingly necessary for an aging population, since they have to rely on funds parked somewhere, yielding some  not-too-small rate of return, may not be able to hold up either. That would mean a disastrous meltdown that would strorngly affect amlost everyone in the US.

Glooom, Doom,and the Bloom of the Real Attention Economy?  Away from Money?

Now, maybe these visions of “doom and gloom” are unwarranted. Quite possibly  the whole system will easily stave off collapse. For instance, it could be that the tremendous flexibility of Internet connection will allow credit crunches to be overcome with new kinds of assurances and money routed in new ways. It is possible that alternative currencies, informally constructed, will be able to replace the dollar. And so on. It is even more possible that the collapse will not so deeply effect the euro or the renminbi, etc. But given the still pivotal role of the US, it is also possible that the doom and gloom would spread across the globe. If so, we will suddenly begin to find ourselves in a new world. It could be that what emerges from the mess will be a much fuller Attention Economy with money playing a much less key role, and eventually virtually no role at all. That , while definitely no utopia, may be the best that one could reasonably hope for.

Here, I am of course speaking of the real Attention Economy, or Attention System, Epoch, Society or World which I have been discussing in the is blog and elsewhere for years   —  and not the advertising-based  much less important system that other people who use this term have come to mean. This real Attention Economy already is quite important, as I have tried to show earlier, when I pointed out that attention “transactions” are already far more common and influential for most people in the advanced countries than are money transactions. The standard economics profession as well as most people who focus on business have remained utterly blind to this fact. But the real Attention Economy, based of course on the scarcity and desirability —for persons— of the attention that can only come from other human beings, is entirely differently structured and organized than is the monetary, industrial-based or capitalist economy. That is why this new system  ultimately does not run on money in any form.

In the next installment, I will explain in detail why the (real) Attention Economy probably can only grow at the expense of the standard forms of the money-industrial system, and why both probably cannot co-exist for too long. This is another reason we may be headed there now. If it is coming, thought must go now into how to mitigate its bad features, while still benefitting from its good ones.