Last year, Slate business columnist Daniel Gross wrote a book called Pop!: Why Bubbles Are Great for the Economy. Needless to say, this doesn’t seem such a great title given our current economic climate and the growing sense even among people who aren’t business-news junkies that the burst real estate bubble will cause a lot of economic misery for all of us. You don’t have to read WSJ to notice the alarming depreciation of your retirement savings, as stocks have lost a huge chunk of their value in recent weeks. And you don’t have to be on a Bloomberg terminal to notice how expensive food and gas are becoming, or to notice how certain neighbors are failing to keep up on their home maintenance, or are even around anymore. No wonder consumer confidence is battered. Though Gross is a bit tongue-in-cheek in celebrating bubbles (as if this was a job he had taken on assignment) his assessment of the impact of the then-not-fully-popped housing bubble seems a touch short-sighted: “So far its salutary effects include the creation of a huge number of jobs and the inflow of investment into long-neglected urban areas.” That was true at the time, but now those jobs are vanishing, and blight is returning to those areas in the form of foreclosures.

Obviously, bubbles cause inflated asset prices, which eventually come back to earth, painfully, leaving a giant crater that causes all sorts of collateral damage. But some of Gross’s points about the origin of bubbles (government subsidies and favorable legislation) and their upside can’t be dismissed: Some of the paper assets created during the frenzy do spur real infrastructure investment, as with the build out of fiber-optic networks that are only now paying dividends with the advent of “cloud computing.” And past bubbles promoted widespread shifts in the way ordinary people work, travel, or communicate. In short, bubbles built the railroad and the information superhighway. Gross also argues bubbles build a “mental infrastructure” for comprehending new technological possibilities, new ways of doing business. The “creative destruction” enacted by the inflation and subsequent undoing of bubbles is presumably a small price to pay for progress. Indeed, by highlighting alternative energy as the next big investment boom, Gross suggests that bubbles will save us all from global warming.

In the most recent Harper’s former VC honcho Eric Janszen puts an apocalyptic spin on this thesis, claiming that the American economy has replaced the business cycle, the bugaboo of economies past, with a hyperaccelerated bubble cycle. Along with this shift, what are sometimes called the FIRE industries (finance, insurance and real estate) have supplanted traditional manufacturing as America’s economic base. Now that the housing bubble has popped, these industries are in grave trouble, and the usual remedies—rate cutting, currency deflation, tax cuts, an influx of foreign investment (think, sovereign wealth funds buying into U.S. banks)—are not so easily implemented when interest and tax rates are already low and inflation is rising and foreigners are filled to the brim with dollar-denominated assets. Hence we need a new bubble to bail us out, and Janszen too points to alternative energy. But rather than highlight the infrastructure and paradigm-shifting legacy such a bubble would supply, he directs our attention to the “$20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver ‘energy security.’ When the bubble finally bursts, we will be left to mop up after yet another devastated industry. FIRE, meanwhile, will already be engineering its next opportunity.” In other words, the middlemen create fictitious value while extracting real profits for themselves, and then let government step in and clean up the mess when the fictions are revealed.

—Rob Horning

Ezra Klein made this comment in response to the recent flap about libertarian Republican Ron Paul’s past racist associates. Building on a previous post, he writes,

It’s this sect of racial purists hiding beneath the furthermost edge of the Libertarian tent that I was thinking of when I talked about the breakaway sects dangerously totalitarian individualists yesterday (though separatists might have been a better word than individualist). Because the state poses the immediate threat, acting as the primary engine of social progress, the language of individual rights and anarchic devolution is useful to these folks. But what they seek to build is not a freer society, but a purer one. One in which a certain group of the genetically (or, at times, religiously) chosen are free to rebuild the world in their image, and impose what rules, laws, regulations, and standards are necessary to keep that picture gleaming.

That view of government seems idealistic, but it’s simply descriptive—the institutions of the state shape society, organizing the rules by which it is structured and enforcing them (evenly or unevenly). It’s not clear how else social change could be measured or codified without looking at changes in legislation. 

One doesn’t even have to be a libertarian to potentially choke on the notion that the state is the “primary engine of social progress”, because many Americans seem to regard government first and foremost as coercive—a parasitical tax-collecting and bureaucracy-imposing beast that feeds on ordinary people trying to go about their business. Naive individualism tends to underestimate the degree to which people interact and shape one another’s possibilities, so naturally it regards government as an unnecessary nuisance. Individualism at the same time underrates the scope to which one person can affect a community; it presumes people are easily able to contain their business to a small realm of privacy and do without the validation, recognition, or assistance of anyone else, that individuals can spontaneously generate their own ethics and desires, as if these were in no circumstances other-directed, when it seems far more likely that the precise inverse is the case. This kind of individualism invokes liberty, but in doing so circumscribes an individual’s sphere of action, but it neglects to account for the pleasures of influence and being influenced, things we seem to willingly and routinely sacrifice liberty in its purest sense for. So it may be that those preoccupied with their individualism are actually compensating for their failure to have much influence, to garner much recognition.

(On a related theme, Brad DeLong links to this essay about libertarian authoritarianism.)

—Rob Horning

Science News reports about a study testing the influence of opinion leaders, busybody extroverts eager to share recommendations with a wide network of people. Somewhat surprisingly, the researchers Duncan Watts and Peter Dodds found with computer simulations that a critical mass of easily influenced people is more important for the spread of an idea rather than super proselytizers.

More important than the influencers, the researchers found, were the influenced. Once an idea spread to a critical mass of easily influenced individuals, it took hold and continued to spread to other easily influenced individuals. In some networks, it was far easier to get an idea established this way than in others. The entire structure of the network mattered, not just the few influential people.
Dodds compares the spread of ideas to the spread of a forest fire. When a fire turns into a conflagration, no one says that it was because the spark that began it was so potent. “If it had been raining,” Dodds says, “that same match wouldn’t have had an effect.” Instead, a fire takes off because of the properties of the larger forest environment: the dryness, the density, the wind, the temperature.
The upshot of the study, Dodds says, is that “in the end, you don’t have control over how people spread your message.” The best way to increase the odds of person-to-person transmission of an idea is to make it a good idea and to give it “social worth,” he says. “Some things are just fun to talk about.”

Ideas, then, are subject to network effects—the notion that the size of a phenomenon creates its own exponential positive feedback—and their spread has even less to do with their intrinsic quality. What helps spread an idea is not some Tipping Point style special influencer but the ability to bring a large group of naive and easily persuaded people with a propensity for novelty for its own sake into contact with one other—say, some site that would get a bunch of teenagers together to do little other than share and reaffirm one another’s preferences. I wonder if some clever college dropout will come up with such a thing.

—Rob Horning

In a few essays in Choice and Consequence, economist Thomas Schelling investigates problems of self-command, which in his view is central to the vicissitudes of a consumer society:

I propose that people concerned about consumer ignorance, about the inability of consumers to budget, the inability of shoppers, especially poor people, to spend money wisely, and about the consequences of misleading advertising—including the advertising that convinces people they feel bad or smell bad and need something that comes out of a spray can or a medicine bottle—all together add up to no more than the inadequacies of consumer self-management. In other words, if people could reliably do, or abstain from, the things that in their serious mode they resolved to do and to abstain from (or would resolve if they didn’t give it up as hopeless), it would make as much difference in the aggregate as if all those other familiar problems of consumer ignorance and budget management could be dissolved away.

This verges on the tautological: If consumers weren’t tempted by ads, they would be able to not do the irrational things that ads tempt them to do. But I think Schelling’s point is that consumers are not the rational, unitary individuals we for convenience sometimes assume they are; that instead we are made up of multiple selves with competing agendas, and the problem rests there rather than with the evil intentions of those companies seeking to exploit that fact.

And since we are made up of multiple selves—the self that wants to eat at Carl’s Jr. vs. the self that wants miso and wakame; the self that wants to read Hegel vs. the self that wants to play River Raid on an Atari emulator—Schelling laments the fact that we can’t enforce the contracts one of our selves make with another.

The law has grasped the paradox that freedom should include the freedom to enter into enforceable contracts; it seems to overlook the need that people often have, and perhaps the right that they should have, to constrain their own behavior for their own good.

The problem is that no one has an interested in enforcing our contracts with ourselves. As Schelling explains, no one else cares whether he actually gets up and does 20 push ups every morning. There’s only you, and who knows which you will be deciding whether your excuses for not keeping your word to yourself are sufficient. Contacts need to be reciprocal, Schelling notes, and we can’t have reciprocity with ourselves.

One solution is to make your pacts for self-improvement with a wrathful god, whose punishment you expect if you stray and whose church you can enlist for “social and institutional support,” Schelling points out. Perhaps religion is mainly a means of enforcing otherwise unenforceable contracts; it gives a slightly different wrinkle to Pascal’s wager—it’s to our own benefit to believe in God because then we can then use our belief as leverage against our recalcitrant selves. If we choose not to believe in God, not only do we risk God’s wrath and potentially miss out on infinite reward, but we subject ourselves to unlimited responsibility for ourselves.

Other solutions for the self-management problem involve various forms of voluntary paternalism, in which people consent in advance to have restrictions imposed upon them later by some outside force—friends, neighbors, the state. In other words, we would enlist the government to help us make irrevocable decisions. A cursory reading of 18th and 19th century novels quickly reveals how society used to work much more strongly in this regard, perhaps because there were fewer people, less social and geographical mobility, and a more widely shared moral code. People couldn’t as easily evade the reputation that they developed, and society was organized around promulgating the known reputation of others and generating consequences for ethical lapses. English novels are full of women worrying about being lady-like, men being gentlemanly; this upheld a specifically patriarchal system of gender relations, but the sexist system perhaps managed to entrench itself because it fulfilled a necessary social function of constraining behavior to a predictable range. And one thing that’s especially palpable in all the Trollope novels I’ve read recently is that his characters love restrictive mores, as a source of gossip and regimentation and, maybe most important, self-ordering. They have an easy time convincing themselves that the contracts they’ve enacted with themselves are backed by the force of society’s contempt. They seem to enjoy taking dishonor seriously, because it allows them to truly feel honorable.

Schelling also worries about how to determine which of our multiple selves is the authentic one. Which self would have the right to have the upper hand in contract negotiations? (Postmodernist theory seems to suggest either all or none of them.) When external codes of conduct limit what one can feasibly conceive of doing, certain selves become unthinkable, disqualified, inauthentic automatically. From this stems the joys of conformity.

But consumerism relies on the joys of individuality, which ironically calls for giving our multiple selves free play, and subjecting ourselves to continually reversing on ourselves or revising our desires. All the potentially negative traits that derive from a disunified self—impulsivity, indecision, behavioral incoherence, unpredictability, unreliability, inability to plan or follow through, irrationality, inefficiency—seem to be exacerbated intentionally in consumer societies, precisely because these states of mind are conducive to shopping. We express individuality through the freedom to do whatever—to be inconsistent—rather than by having a clearly defined and consistent self. 

—Rob Horning

Starbucks was prominent in the news yesterday. Founder Howard Schultz has been called back into action in an effort to reverse the coffee chain’s slide into mediocrity.

[Schultz] said moves to automate coffee making in the interests of efficiency had damaged the “romance and theatre” of a visit to the stores. Starbucks shares have fallen 48 per cent over the past 12 months. They rebounded 8 per cent in after-hours trading on Monday.
Mr Schultz said his agenda would include slowing the pace of new store openings in the US and closing under-performing locations, and redeploying capital originally assigned to the US to increasing the profitability of its overseas operations.

Ah, yes. I’m sure you fondly remember as I do how romantic it was to stand around in the Starbucks theater waiting for someone to hand you your coffee. What high drama there was in a cranky espresso puller getting burned by hot milk.

It seems that Starbucks’ ubiquity has bred indifference to the brand, and its own success has undermined the mystique it once had as purveyor of some rare, special elixir known as a “latte.” Now just about everyone knows what a latte is, and you’ll even be able to get them at McDonald’s, as this entertaining WSJ story details. Though Starbucks may have originally conceived of itself as the opposite of McDonald’s, it always seemed natural that they would either mimic each other’s identity or actually combine, like the women in Persona slowly shading into one another. I used to argue that instead of “selling hot, brown liquid masquerading as coffee” (as a ex-Starbucks exec called McDonald’s coffee), McDonald’s should be licensing Starbucks coffee and selling it to people who have come to want the serious gourmet shit. (But then I typically make the mistake of thinking that Starbucks primarily sells coffee as opposed to “upscale coffee drinks”—I don’t drink anything but black coffee, and I forget that most people associate Starbucks with the elaborate froufrou drinks and don’t really care one way or the other about good coffee as long as there is lots of sugar and steamed milk.) Both companies are also primarily brands that communicate a certain uniformity of standards. It’s not ideal but you know what you are getting when you roll into McDonald’s after pulling off I-80 somewhere in Nebraska.

It seemed as though the companies could reinforce each other’s brand equity; in a sense they already do. By giving the language of brands such powerful and universal symbols, it validates the whole phenomenon. But I hadn’t expected them to become direct competitors, for, as the article points out, they want to supply different things to achieve the goal of vending high-margin beverages: McDonald’s uses cheap, high-calorie food; Starbucks, ersatz ambiance and “theater.” But ultimately, Starbucks abandoned that method and sought more and more store traffic. Schultz’s return promises a reversal of that trend.

But the WSJ article offered other surprises. For one, McDonald’s may also seek to provide a music downloading service at some of its locations. What more evidence does one need that music has been thoroughly commodified, that you’d buy some songs alongside a Big Mac? But who wants to stand in a McDonald’s browsing for music? It’s not like Starbucks, which seeks to sell its (now faded) ambiance as an enhancement to the music sold. If there’s any justice, the first song McDonald’s will sell will be the Gang of Four’s immortal “Cheeseburger.”

I also found this interesting:

Mr. Schultz has said that new competition actually helps Starbucks by expanding the specialty-coffee category. “Those consumers over time are going to trade up,” he told investors in November. “They’re going to trade up because they are not going to be satisfied with the commoditized experience or the flavor.” He has emphasized that Starbucks’s baristas, who are instructed to memorize customers’ drink orders and make genuine conversation with patrons, will continue to set the chain apart.

Not only is it ripe for Schultz to argue that the Starbucks experience is not commoditized, but he goes on to offer the fact that workers are ordered to make “genuine” conversation as evidence. This may be stupid of me to ask, but when you force people to talk, can the resulting conversation really be considered genuine?

—Rob Horning

This article from Scientific American suggests something that I’ve often suspected, that boredom is less a matter of dull circumstances than of unimaginative people.

a new generation of scientists is grappling with the psychological underpinnings of this most tedious of human emotions—and they have found that it is more complicated than is commonly known. Researchers say that boredom is not a unified concept but rather comes in several flavors. Level of attention, an aspect of conscious awareness, plays an important role in boredom, such that improving a person’s ability to focus may therefore decrease ennui. Emotional factors can also contribute to boredom. People who are inept at understanding their feelings and those who become sucked in and distracted by their moods are more easily bored, for example.

In the past, I’ve argued that consumerism as a system induces people to become more prone to boredom by encouraging them to feel entitled to convenience and hence exist in a state of perpetual impatience, which is quite like boredom. People come to regard their own experience as disposable, something to be hurried through. At the time, I didn’t know about the Boredom Proneness Scale, developed by two psychologists, or what its application has found in terms of whether people are getting more or less bored as society becomes more saturated with commodified culture. But the researchers who created the scale have identified two main characteristics of those easily bored that fit well with my theory: Boredom stems, in their account, from a need for novelty and an inability to generate their own stimulation: In other words, they have become passive consumers who wait to be entertained by some new external stimulus as rapidly as possible. These in turn derive from a short attention span. The question then is whether consuming culture designed for people with short attention spans can actually produce a short attention span. Or is A.D.D. not something our environment has inflicted on us.

This point of view gives a new cast to a meme that already sounds creepy and ominous—the onset of the “attention economy.” It feels as though we have less and less attention to give, as our surroundings become hypermediated, and worse, the scarcity of attention reinforces itself. Attention ceases to be a renewable resource.

—Rob Horning