Michael H. Goldhaber

In the previous post, I pointed out that money is of great importance  only when the world is dominated by standardized goods and services. One essential of standardization is  that goods or services of a certain type are interchangeable. This ton of wheat equals that one, this 100 watt lightbulb equals that one, this kwh of electricity equals that one, and so on. In some cases (actually even in these cases) one has to specify more to get an acceptably  equivalent product or service, sometimes much more. For instance, 50 cycle per second, 220 volt  electricity is not equivalent to the 60-cps, 110-volt kind. Still, in both these cases, only a few numbers define the electrical service, and there are still huge numbers of completely interchangeable kilowatt hours of each kind of electricity available depending on where you get service.

As the electricity example indicates, much standardization is based on the growth of science and scientific measurements. But of course such measurements extend beyond science. Consider, let us say. men’s size 16-and-1/2, 34 white no-iron Oxford cotton, button-down, long-sleeved dress shirts (this is in American measures; to find equivalent European measures, e.g., a conversion table must be used). Any large men’s store will carry such shirts, and quite often a variety of styles and brands within the category. The different styles will not generally be exactly the same fit, and the prices will not be exactly the same either, though all the shirts of one size, style and brand will be identically priced. Also,the most expensive shirt of this general description will probably be priced at no more than about five or ten times the cheapest. The more expensive ones probably carry designer labels. You pay more because this designer adds a certain “class” to the clothing — a classiness that should be reflected in how you will appear to others. Men occasionally and women quite regularly seek out designer brands of clothing of all sorts, and some of it departs quite a bit from being highly standardized. Here, a large part of the markup in price is a kind of payment to the designer as a result of the attention she or he has gotten. (Wearing such clothes, you can hope to get a little of the attention that “rubs off” as much of it heads for the designer.)

Money’s Two Components

Thus, we can think of both goods and services as having two components in their prices: the standard component — in which the designer is indistinguishable from the herd, as if the item were not specially designed at all — and the attention part.

This is in accord of course with what Kevin Kelly reminded us I had indicated earlier about the fact that if you gain attention, you will also be able to have money flow to you. As with goods, in a sense we have to conceptualize the money we keep track of as having two components, the standardized component and the attention -connected component. A certain proportion of money transactions are completely standardized: wages of industrial workers used to buy standardized goods, and the profits that go to those who own and run such businesses. Other money transactions, such as buying designer jeans or contributing to the campaign of a political star are more mixed or virtually all attention related.

How Much Money Goes With How Much Attention?

Now let’s observe a couple of peculiarities of the attention-paying component. If people pay you attention, you generally can, if you want, receive money, and generally speaking the more attention you get, the more money you can pull towards you. This is as true of Damien Hirst, the artist, as of Osama bin Laden, the terrorist, or Giorgio Armani the clothing designer. For all three, in addition to the money, there are the fans —and the enemies too. (If bin Laden had no enemies, he would have far fewer fans, and probably the same goes for Hirst, even though in his case the enemies are not out to kill. To some degree, you receive attention by standing out, which has to mean in some way opposing the norm, the standards, and thereby, you also create some enmity.) However, a key point is there so no way to assign a definite monetary value to having a certain amount of attention.

Another thing one might hope to do with attention is buy it. Advertisers try it all the time. Some educators try to bribe their students to pay attention with offers of cash. One generally tries to buy the attention of any sort of professional — doctor, lawyer, editor, psychotherapist, tutor, architect — whom  one hires. But, in all these cases, there is no necessary correlation between the amount of money one pays and the amount of attention one gets. This is also true for the services of chefs, restaurant servers, flight attendants, etc. Are they really acknowledging who you are and what you really want when you ask, or are they to a greater or lesser extent treating you as just another random customer, with perhaps the same uniform politeness and smiles they would show anyone else? That depends you: Can you win or have you won their true attention?

A Side Remark About Luxuries

A corollary to all this: Luxuries (of the kind one buys) are basically non-standard goods or  services. They generally have large components of star connections —works of art, designer clothes, restaurants with renowned chefs, and so on. Thus the money flows to stars, to a good extent, even though they may mostly recycle it. In addition, many luxuries imply that the recipient gets a great deal of personal attention, which like any attention, cannot be relied on equally by all purchasers. Still the purchase of luxury goods, because of their usually less assembly-line production do employ more people than the standardized goods and services that the average person can mostly hope for.

Back to Money and Attention

Meanwhile, advertisers pay for the size of audiences for the surrounding attention-getting material, but that by no means guarantees how many in the audience will pay the slightest attention to the ad. Still less does the money paid indicate how many in the possible audience will be moved enough by the ad to buy what is advertised. (A very attention-getting ad often draws more attention to its creator than to the product advertised. We may not know the name of this person, but we will think to ourselves “what a clever ad,” meaning “I like the mind behind this.” )

Two Conclusions to Remember

Neither through attracting nor being sold does attention go with a definite amount of money. So as attention-paying and seeking and even receiving all grow in importance   we can expect two results:

1. A larger and larger fraction of all the money in circulation will go to net attention-getters, i.e., stars;

And

2. This growing non-standardized relationship to money will render definite amounts of money more and more meaningless in most cases.

Money Gets Stranger

We now have a situation in which in the rough way this happens, less and less money, comparatively, goes to the invisible, non-stars —such as factory workers, who churn out the standardized goods, along with many kinds of service worker — while a relatively larger fraction flows to attention-getters, even fairly modest attention getters such as typical doctors or lawyers or yoga instructors.

Note that this is not the same as inflation, or deflation for that matter. The “money supply” may rise —possibly by orders of magnitude — while the prices of standardized goods —quickly churned out to meet whatever the level of demand — stay more or less flat. Every unit of money is of course exactly the same, and in fact quantities of money can certainly bedazzle, but all this is symptomatic of the passing of the era in which money was a bedrock part of reality. To see what is going on with it, I will next time focus on financial institutions, such as banks, where money alone is the standardized good.

Next time: banks, etc.

As I write, the stock market is flatlining, credit has seized up, no one seems to know what to do, and bad times seem in store. What caused it? Not what you think. Not, basically, greedy Wall Streeters, ordinary consumers taking on loans they could not pay off, bad accounting requirements, faulty credit ratings, failures of regulators to regulate, nor a formerly too rosy outlook from the Fed. These were all surface phenomena.

What lay beneath then? One way to put it: too high a worldwide savings rate. Consumption too low. And, partly causing both of those, the rise of the Attention Economy (as I define it,  not as it has been defined by others).

We have been told for years that the savings rates of Americans are too low, that we are over-spending on consumption, and  that there is too much reliance on credit. That’s not impossible, but worldwide, the savings rate in fact has been too high, and I suspect it may have been unrealistically high in this country as well. And certainly, to have such a high worldwide savings rate, consumption has been too low. I am embarking on several posts to explain.

Swimming in a Pool of Money

Let’s talk about “savings” first. What most Americans understand about saving today is that it it really means investing one’s money or one’s retirement account (or paying into a pension plan that will invest for one, of relying on one’s employer to do the latter) in such a way that the total nest egg will grow to a tidy sum by retirement. Not everyone is fortunate enough to have such savings, and I don’t have the figures right now, but certainly a sizable proportion of people near retirement do have substantial savings — or did.

To that domestic pool of savings must be added similar things from Europe, plus, from the “developing world,”  the so-called “recycled petrodollars” and the savings of capitalists and to some extent even workers. Also we should add in the growing pies of savings held by non-profits, such as universities and foundations.

Take one example: the country of Singapore, which has experienced a very high rate of growth has a large investment fund to spend abroad. Why? Why not invest at home, or use the extra money to buy goods and services now? First of all there is no crying need or desire for more goods and services now, and second, Singapore seeks a nest egg for its own “retirement” or to take care of its own aging population.

Saudi Arabia’s population isn’t aging, but it also parks a considerable portion of petro dollars in the accounts of small group of ultra-rich princes and commoners, and also invests money abroad for its own post-oil future. (As if.)

All these investment pools seek more or less reliable “growth stocks” to invest in. It’s too much money chasing too few stocks. Even under ideal capitalism, we can’t all be capitalists; we can’t all get even moderately rich on the basis of investments in productive industries of any kind.  (Of course, the average financial planning advisor will be happy, even now to claim the opposite. It can happen for some, or at least it could, so the FA is only necessarily misleading in the aggregate. )

The more we save, the less we consume of course. Also, the more money is distributed unequally to the few rich and the many too ill paid, the less net consumption there is . The rich have money to burn, but most of them don’t want to. They want to get still richer, and of course their extra funds are part of the same investment pool.

Speedup

Meanwhile, however, firms keep improving efficiency. Labor productivity keeps going up. But overall consumption does not increase that fast. (I’ll explain what I term “consumptivity” and how it connects to attention in my next post. ) Capital productivity keeps rising too. That means that in terms of industrial-era investments, there is not enough to invest in with any realistic hope of substantial profits. And not enough industrial type jobs either.

Hence, what the NPR program “This American Life” in a special broadcast last May about the sub-prime mortgage mess calls the “Giant Pool of Money” — to wit, about 60 trillion dollars cruising the world in search of ways to become much more. That money, feeding into the collateralized debt obligations along with credit default swaps, hedge fund shares and so on, helped propel the overheated financial sector and the overheated housing market, and much else besides.

You know the rest in that regard: the silly assumption that housing prices would rise forever, the super-easy, turn a-blind-eye mortgage offerings with huge built-in rate hikes; the speculators seeing a killing buying extra homes for nearly nothing. Many Americans, some having already developed a nest egg in investments they didn’t want to touch, and others with no money to their name at all, taking on new credit based on home -price appreciation.

Many had to do this because they simply were not paid enough to support families or send kids to college. Why so little cash? One reason: no executive “worth her or his salt” wants to overpay workers or keep more on the books than necessary. That is out of fashion throughout  the profit- and non-profit sectors alike. It was partly by paying workers as little as possible that executives and investors could grow rich, after all. That led to more money in the investment pool that could find no sensible target.

Arrrrgggh! Who Stepped on the Brakes?

The old realities had given out, and the spiral might have kept on going if all those involved had forgotten all about those old truths. Instead, rates did reset; borrowers suddenly could not pay. Foreclosures began; housing prices stopped rising and began to fall, and more foreclosures ensued. Then the entire overheated banking edifice came crashing down, to be explained more carefully in my third forthcoming installment.

Such Golden Years

As to hopes for pensions and retirement status: Republicans shed crocodile tears over the supposed “underfunding” of Social Security based on the fact that retiring baby-boomers will not leave enough younger workers in the system to pay the taxes to fund the program. Democrats defend Social Security but also believe pensions and 401k’s, etc., are good bets. Of course younger workers have to do the work that will lead these investments to be profitable. If the investments are in other countries, those countries’ finances have to stay good and accessible. More fundamentally, what retirees really will need is actual attention paid to them. No national policy on pensions can guarantee that in advance, which neither party ever thinks about. Savings and pension funds and perhaps Social Security too were if not lies based on a false notion that the system as it was could keep going on on forever.

Still to come:

2. The Limits of Consumptitivty;
3. How the Attention Economy is (Semi) Incompatible with Money;
4. One Result: Banking Has to Go Bonkers
5. Any Chance of a Soft Landing? Possible humane policies for the new era