If I were to wrap the causes of humanity’s recent political progress (and, quite likely, the scientific and industrial progress that followed) up into two words, I would use rational government. Starting with Machiavelli’s championing of republics (despite his better-known satire, The Prince) in the 16th century, and culminating in the Enlightenment of the 18th, political philosophers began to approach governmental problems with a structural and proto-scientific mindset. The concept that monarchs could rule by “divine right” was discarded, secular governments replaced religious ones, and constitutional government became requisite. It’s easy to take this for granted, but for most of human history, political bodies were ruled by charismatic leaders who would allow no checks against their accumulation of power. “Don’t you trust me, as your rightful king?” (“Well, even if I did, I don’t trust your asshole son who’ll reign after you knock off.”) What makes the 18th-century political philosophers so brilliant is their insight that trusting in people was the wrong way to go, because they tend toward unreliability in the long run as power corrupts and the throne changes hands, and that it was better to build robust structures. Governance, previously existing in the context a paternalistic reign handed down “from above” and usually justified with incredible supernatural claims, was something people could debate and vote on.
Since then, what we’ve had in the West have been mostly libertarian governments, at least compared to most of human history. It hasn’t been monotonic progress, but the ideal of rational government is clearly winning. We don’t burn heretics. In fact, most governments recognize the concept of a “heretic” as meaningless. This isn’t to say we got it right from the start, and it’s still not perfect– “sodomy” laws and the opposition to gay marriage are one example of pre-rational hangover– but the ideal is well-understood and people are working toward it. Libertarian government is, by and large, the accepted norm among educated people.
Rational government likely emerged as Europeans became more mobile. Interactions among people from different countries and with radically different experiences with governments fostered an interest in comparison. What are the English doing right and wrong? How about the French? The Italian states? As Europeans developed a more complete knowledge of their history and the variety of political structures, the existing patterns began to look ridiculous. The view of hereditary divine right evolved from seeing it as a component of a fixed, natural order to considering it a dangerous, reactionary superstition. Not to overstate my country’s importance as an American, but the United States plays a major role in this trend as well. In the late 18th century, a mix of mostly English Europeans attempted to experiment with rational government on the new continent, designing a country that was, from first principles, devoid of hereditary aristocrats or state religion.
What happens when rational, libertarian government (with low corruption) becomes the norm? The good news is that these governments tend to be fair and stable. There isn’t a lot of corruption or rent-seeking by government officials. It exists, but it’s less severe than it would be in a typical theocratic or aristocratic oligarchy. So you get an industrial, capitalistic economy. (For a contrast, the extortions and bribes required in a corrupt oligarchy retard industrial and entrepreneurial progress.) That’s a good thing, but it brings its own sets of problems. One of the major and perennial ones is the ability for businesses to profit, at the expense of the world, if they’re able to externalize costs (e.g. to the environment). There is also the instability, as observed in the 1930s, of hard-line industrial capitalism. Poverty, we learned in the Great Depression, is not some “moral medicine” that makes people better. It’s a cancer that can devour an entire nation. The third problem is that a libertarian government has a hard time curtailing an unchecked corporate elite that emerges in the power vacuum.
Over time, people begin to realize that laissez-faire capitalism is not desirable. This leads to a class of government interventions (social welfare programs, regulation, high taxation rates) typically associated with socialism and, in small doses, there’s no question that they’re an improvement. However, a number of supposedly “socialist” governments have proven themselves to be immensely corrupt, brutal, left-wing authoritarian regimes no better than the right-wing dictatorships of old. I don’t think anyone educated would prefer that extreme (statist, command economies) over the current system. Empirically, they don’t work well (see: North Korea). The question of where on this purported spectrum between statist socialism (left) and laissez-faire capitalism (right) an economy should be remains open.
What is the answer? Well, I think it’s important to look at this with a scientific, data-oriented mindset. I don’t have the kind of data that it would take to find a “closed-form” answer, but let me draw some insights from machine learning and statistics. Modeling approaches tend to be global, local, or some combination of the two. Global methods assert that there is some kind of underlying structure to the problem, and use all the data to build a model. For example, if one were relating latitude to average temperature, a global model would capture the relevant global relationship: polar latitudes tend to be cold, and equatorial latitudes tend to be warm. The vast majority of the earth’s surface would be well-classified by this model. It would, however, misclassify Rome (high latitude, warm) and Mount Kilimanjaro (low latitude, cold). You’d need a richer model (altitude, ocean currents, marine west-coast effects). Linear regression is one of the simplest effective global models, and for a wide variety of problems, it does well. On the other hand, local methods of inference give a high weight to nearby data. The archetypical local method is the “nearest neighbors” approach to inference. This is what real estate appraisers use when they attempt to find a fair value for a house or plot of land: what seems to be the market rate for nearby, comparable property? There’s clearly no simple global model relating positional coordinates to land or location value, so nearby data must be used. The disadvantage that local models have (as opposed to global ones) is the paucity of useful data. For many problems, there just isn’t enough data for local methods to perform well, either because the data is hard to collect or because the space is too convoluted (high dimensionality)– or both. The lesson is that both local and global methods of inference and modeling are valuable, and neither category is uniformly superior. To solve a complex problem, it usually requires both approaches to be used.
So what do these concepts of global versus local inference have to do with economics? Well, archetypical socialism is a global-minded approach. Certain social justice constraints (“no one should have less than <X>”, “total environmental pollution cannot exceed <Y>”) are set with the intention (at least, the stated intention, as many left-wing governments have been execrably corrupt) of keeping society fair, stable, and sane. The problem is that this can lead toward a command economy, and those do a poor job of solving the fundamental wealth-creation problem: building things people want, but that they don’t have the vision yet to know that they want. Command economies can produce commodities “to spec”, but no command economy could have come up with Google. Capitalism, on the other hand, is fiercely local. It has its own intellectually defensible brand of fairness (right-libertarianism) but no interest in enforcing global social-justice constraints. It doesn’t have the tools, and it has no interest in developing them. What it does extremely well is enable the individual to exploit local information (that command-economy bureaucracies would never acquire, and over which they would never agree on an interpretation) for personal benefit. This is, in effect, what markets are: distributed, computational methods for aggregating trillions of bits of local information, aggregating a signal from millions of self-interested actors.
What I intend strongly to convey, of course, is that a modern economy must draw from both columns. Socialist command economies degenerate rapidly, in large part because they must curtail individual freedoms in order to maintain the global structure to which they’re committed. Laissez-faire, on the other hand, diverges. For a while, the use of local information conveys a computational benefit and better economic decisions are made. Unfortunately, this also has a tendency to generate inequality among individuals that, in the long term, has a pernicious effect. Inequality among ideas and companies (aggregations of effort) is a good thing, because it means that bad ideas die and good ones grow in importance. When that’s applied to people, it’s not desirable. A class of economically disenfranchised people emerges, and so does an entrenched, wealthy aristocracy. The modern corporate elite is of the latter category. The incompetence and attitude of entitlement that reside at the top of American corporate world are truly terrifying.
One of the issues with capitalism and socialism both is that they tend to generate defective versions of the other. It seems to be a natural tendency. Supposedly socialist Russia had crime-ridden, violent black markets– the kind associated with illegal psychoactive drugs in North America– over commodities as staid as light bulbs. A command economy will not eradicate the very natural will to trade, and this creates a market. Making that illegal simply denies participation to law-abiding people, making what markets will exist unregulated and inefficient. On the other hand, American capitalism has generated a perverse socialism-for-the-rich. CEOs’ kids don’t “work their way up” in a meritocracy. Their wages aren’t set by a real market, but via favor-trading within a socially closed network of self-dealing corporate officials. Their daddies buy their educational admissions and resumes and, if they’re truly too stupid to make it on their own despite immense assistance, board-position sinecures at large corporations.
Right-libertarians (the “Tea Party”) blame corporatism on the government– it’s all this damn regulation that creates the corporate problem, they say– but that’s not a useful assessment. What actually happens is that the existing elite wants badly to stay elite and will use its immense resources in order to do so. They aren’t ideologically capitalistic. They would be just as comfortable as the ruling party in a left-wing, nominally “socialistic” tyranny as long as they were at the social apex. What they are is self-protecting. If corrupting governmental and educational institutions is an option to them (and it always is, because most modern corruption is in the form of invitations to parties, not actual wads of cash) they will do it.
Corporate America has generated its own royalty. What is different about 2012 from five or ten or fifty years ago is that people are now cognizant of it. The most interesting right-wing movement in the United States is the nascent Tea Party. While I disagree with them vehemently (as a left-libertarian, and also as one who favors science over emotional argument) I will give them credit for this: at their intellectual core (and, yes, there is one) they are aggressively anti-corporate. Post-2008, Americans get that the Corporate System is not a meritocracy, not rational, and not even real capitalism. It’s designed to provide the best of two systems (socialism and capitalism) for a well-connected social and increasingly hereditary elite, regardless of merit, and the worst of both systems for everyone else. For themselves, they create an economic arrangement in which they can derive enormous personal benefit from random variables that exist in the economy, but at the same time build a jealously guard a private social-welfare system that ensures they stay rich, well-positioned, and well-connected even if they fail. For the rest, they provide mostly downside, displacement, and discomfort. A perfect metaphor for this is air travel. Well-connected people get discounted or free air travel, special lounges in the airport, and access to comfortable private aviation. The rest of us get Soviet-style service and capitalistic price volatility: the worst from both systems.
What’s changing is that people all over the world are beginning to see that we don’t have a rational economy. We have a priesthood caste of executives who rule by their own version of “divine right”, claiming that the (invisible, to most people) network of social support that has placed them represents the “wisdom of the market”. We have a world where the transference of money into power is not only politically accepted, but increasingly seen as socially normal. It’s not called “corruption” anymore when journalists and government officials attend depraved parties in Davos, La Jolla or Aspen; it’s “self-interest”.
So what are we going to do? How do we overthrow the tyranny of position, especially in a world where such entrenchment can masquerade as “reputation”? We now have a world in which private social assistance can be presented as a “talent acquisition” (or “acqui-hire”) when our forefathers at least had the insight to call it “welfare for rich people”. These people are very well-connected and extremely adept at corrupting press and educational institutions in order to make their positions seem legitimate. They’ve created their own variety of rule by divine right, with “God’s will” ascertained in accord with how much money a person has (regardless of how he got it). For one concrete example, people are usually evaluated in a professional context according to job titles. Well, what are these but knighthoods and baronies assessed “from above”, and “up” points toward an entrenched, never-elected social elite who are not so much capitalism’s “market winners” as those best positioned to exploit an increasingly industrial economy. Is there really a difference between “Senior VP at BigCo” and “Thane of Cawdor”? I don’t see one. So why is the former resume gold, while the latter is a laughable anachronism?
I’m running out of time, so I’ll stop bashing the corporates and cut to the chase. The 18th-century was when the idea of rational government came to the fore, and it changed everything. People argue that the French Revolution “failed” because it led to Napoleon, but the truth is that Napoleon was quite restrained in comparison to almost all feudal lords, much less absolute monarchs. Progress toward rational government was not monotonic, but once the ideas reached implementation, they couldn’t be rolled back outright. The ideals lived on. They continue, even now, in the darkest and most irrationally governed corners of the earth, such as the Middle East. These concepts of rational government may not be implemented yet, but they are well-known and considered superior among a large number educated people. I believe that the 21st-century is when we’ll start to see real progress toward the rational economy. Why? Because it will be the only thing that can compete in the technological world. Only societies with rational economies and true “meritocracy” will be able to grow their prosperity at a technological (possibly 10+ percent per year) rate.
The Industrial Revolution required rational government, because the theocracies and monarchies of old would never have tolerated the social and economic rise of these upstarts. Change to a technological world will meet similar opposition from our entitled social, nominally “corporate”, elite. I don’t believe in a “Singularity”, but there are phase changes in growth, and the fast-evolving new entrants frequently “win”. Immensely powerful reptiles (dinosaurs) died out, while the small, fast-evolving creatures with mutant sweat glands (mammals) were able to adapt. Tool-using animals were able to control their environment in a way that their predecessors could not, and eventually evolved into the first humans. Awareness of time and future-orientation led to the agrarian revolution, characterized by 0.05 to 1% annual economic growth, and rational government made the industrial (1 to 10% annual growth) world, emerging in the late 18th-century, possible. Now, the world is pregnant with a new possibility: a technological world characterized by rapid economic growth, general prosperity instead of poverty and, if we do it right, an end to this sickening tyranny of geography (physical and social) that has rendered most of the world’s population poor. However, we’ll need a different kind of thought to make this possible. We’ll need a world where the right people– technologically-minded people– are making the decisions, and we need an economy that is not only rational, but protects its own rationality. This requires both the protection against divergence (poverty and self-perpetuating, entitled wealth) provided by socialism and the individual, local liberty of capitalism, but it requires something more: a technologically-minded commitment to solving hard problems using approaches (such as, in software, open allocation) that would previously be considered radical.