Sunday, February 22, 2009

What is "The Economy"?

In times of economic recession or depression, if we're going to fix it, or save it, or renew it, or let it heal itself - wouldn't it make sense to know what economy means?

Let's look at two definitions. The Oxford English Dictionary, in the first of many meanings, defines "economy" as "The way in which something is managed; the management of resources; household management.." I like this one. It points, I think, to the economics of the future. For two reasons. First, where people commonly think the of "the economy" rather passively - in terms of the health of markets - this definition speaks of economy in terms of the active role of managers in managing and regulating markets. In this definition, economy is not something that happens, but something that people make happen. The global financial crisis (and globalism itself) is forcing nations (central bankers) everywhere to accept, and accept in concert, this more active definition of economy. Especially with respect to regulation, centrals bankers can no longer afford to be mere spectators of sophisticated yet unregulated financial entities or practices.

Adam Smith spoke of the invisible hand that causes an individual as he advances his own self-interest to advance, invisibly, the well-being of his community as a whole as well. But the global financial crisis has made visible, has it not, the crude hand (pictured here) of those who turned markets worldwide into a giant Ponzi scheme. This brings home an obvious but neglected truth. While Mother Nature makes the weather, markets (while impacted by the weather) are the creation of human beings. To function, markets must be trustworthy: they cannot be rigged. More than this, given the environmental and education challenges confronting the world today, the markets of the future - the economy of the future - will perforce serve the public interest.

I like the OED definition of economy, secondly, because I believe the "resources" mentioned in it will in time include not just the labor and capital resources that have marked economics since the days of David Ricardo and Adam Smith, but also cultural and even spiritual resources as well. Enough said on this point for now.

Now let's look at a second definition. Wikipedia defines economy as "the realized social system of production, exchange, distribution, and consumption of goods and services of a country or other area." Note that apart from its cloudy reference to a "realized system" - to the thing managed and not its managers - this definition is silent on the function of management. It's vulnerable to the notion that economies, in their totality, take shape on their own, without human management. (OK, given the failure of central bankers worldwide to anticipate the current financial meltdown, this reading seems fair enough - but can the world allow this meltdown to occur again?)

Stepping back to look at world's plight today, I see the need for two kinds of leadership. First is the need for top-down, short-term triage stabilization of a broken financial system. But this top-down leadership, even as it repairs what's broken, can do so effectively only if it has a new financial system in mind, one that can be shared with and approved by the general public. I will go farther and say that the new system will necessarily draw its vital energies as much from ordinary citizens as from large corporations and investors.

This is saying a lot, I know. But democracy is a system of check and balances. And the "Great Disruption, as Thomas Friedman is calling the events of 2008, shows us that the direct involvement of ordinary citizens, will in the future be the only possible check on the tendency of financiers, when given the chance, to take not only finance but government itself into their own hands for their own benefit.

Does all this sound far-fetched? It should not to those who have a modicum of faith in the good sense of the American people. Recently Rick Santelli's "Shout heard round the world" jolted CNBC viewers and caught attention of President Obama. But in his follow comments, Santelli insists that it's high time our leaders listened to ALL the people in shaping America's economic future. In this exchange with Peter McCulley of Pimco, for instance, Santelli and McCulley agree on the need for citizens/government dialog, with Santelli calling it "pretty darned American."

A civic media message. (BTW, Santelli has consistently been against ALL government bailouts whether for Wall Street fat cats, automakers or distressed homebuyers. CNBC's Larry Kudlow, by contrast, strikes me as being against bailouts only for the last two.)

Santelli likely understands, as George Gilder predicted in 1988, that America's once-elite economic playing field is being levelled - flattened, democratized, changed forever - by the bottom-up digital Internet's disruption of the top-down analog media that corporate America's stranglehold on the economy for decades. Economics in the future will be as much a matter of public communication as anything else. Successful economies will be those that widely distribute the most vital information. For an open, 'digital', global-network economics to replace the closed, 'analog', old-boy network economics, central planners will include in their idea of economic resources the cultural and even spiritual resources that comprise the totality of human experience. They must also learn to follow the leadership of all members of the interconnected global household. That, more or less, is what President Obama has promised us. Can't say, though, that I see him following through yet. And as I said here (scroll down to Road to Recovery Part I), it's what John Chambers has been doing at CISCO.

The essential problem with the global economy is not so much the lack of leadership in a traditional, top-down sense of the word. It is the feeling and the fact of disconnectedness that pervades the world despite the presence of modern interactive communications technologies. We are not using these technologies effectively. If I am right on this point, it follows that the global economy will not improve until people everywhere feel and are connected. Culturally and spiritually as well as financially.

These connections must occur at local, state, national and international levels. I would stress the bottom-up, local level because the fatal flaw of yesterday's supercapitalism, demonstrated by the global financial meltdown, was its assumption that the top-down management it had imposed on the world since the end of World War II. In a digital age, this assumption becomes illusory.

Interactive media connect people. This site maintains that productive connections are essential to a viable democracy. And the responsibility of ensuring that connections are productive and not destructive lies equally with citizens and government.

Lead by following, we say here, lead by connecting, lead by co-operating. Big task, but for the first time in history we have the tools, talent and technologies to complete it. Let's get going!

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