How does Haskell deal with the state

The country needs luck and air money: Lessons from Kahneman, "Thinking Fast, Thinking Slow" and Haskell & Westlake, "Capitalism without Capital"

Sometimes the sky can hang full of violins. We are fine and will soon be even better because our society is currently training its muscles: it will learn to better respond to people's needs and it will create wealth out of nowhere. How it works? With the principles of behavioral economics and with intangible investments.

Words are often powerless. But other, great words can give shape to new ways of looking at society and create terms and ways of speaking that can be used in practice. Terms and ways of speaking that then become tools for social debate. They enable society and its politics to renew itself.

Tool 1: The new concepts of behavioral economics in recent decades are the greatest hope when it comes to overcoming some important deficits in economic theories. The psychologist Daniel Kahneman and colleagues have shown that the rationalistic view of man in classical economics is unsuitable as a fundamental abstraction in economic modeling. The preferences of real people and their derived behavior follow completely different rules in important decision-making situations. Kahneman's easy-to-understand summary of his results in the bestseller “Thinking Fast, Thinking Slowly” not only gives the reader breathtaking aha experiences to understand their own and other people's decisions, but actually paves the way to a new kind of politics.

A first, already influential variant of a policy based on Kahneman's results is the approach of “nudges” (small impulses) based on the book of the same name by Richard H. Thaler. This policy approach, which has been enlightened from the point of view of behavioral economics, attempts to guide people into socially desirable behavior through subtle incentives.

The reflections on happiness research in the last chapters of Kahneman's book are even more explosive.

There the author describes the results of experiments for the subjective evaluation of negative and positive sensations. Both in the negative and in the positive, our subjective impressions in no way correspond to a simple summation of the negative or positive intensity of perception over a period of time. For negative sensations, Kahnemann shows that, on the one hand, the greatest momentary negative rash and, on the other hand, the sensation at the end of an observation period are decisive for the subjective evaluation and memory of negative experiences (this was measured by colonoscopies, by the way). In the case of positive sensations, however, Kahneman's experiments show, the question of the subjective evaluation of the happiness experienced is much more complicated and ambiguous - simple evaluation formulas are not possible here so far. Happiness research and the economy of happiness are still facing great unsolved puzzles, but one thing is clear: In the same way as the models of the national economy, the optimization goals of a policy oriented towards the common good under the new conditions of interactive social media will in future be much more closely related to the actual happiness priorities the citizens can and must provide guidance. Perhaps the question of the correct evaluation of happiness is not one that can be answered conclusively: Then in the future competing parties will not differ through different particular interests represented, but rather through different theories of happiness.

Tool 2: Conceptually less clear at this point in time, but just as important is the emerging understanding of the change in what is actually being produced in developed economies: namely, the immaterial to an increasing extent - if you will, air:

The future does not belong to the fitness studio with its training equipment, but to the branded and globally licensed training program with a selected music playlist.

Jonathan Haskell and Stian Westlake wrote a remarkable book that was published in 2017: “Capitalism without Capital - The Rise of the Intangible Economy”. The estimate of the national accounts in 11 OECD countries shows: In recent years, the total of intangible investments has overtaken that of material investments and, especially in the Anglo-Saxon economies, has already significantly overtaken it. What are intangible investments and what does this trend mean? Based on efforts to systematize international economic statistics, the authors distinguish three main categories with sub-categories:

  1. Computer information, with the subcategories of software development and databases
  2. Innovation ownership, with sub-categories R&D; Search for mineral resources; Production of entertainment and original artistic works; Design and other product development costs
  3. Economic competencies, with the sub-categories of education and training; Market research and branding; Business process reengineering

For readers who primarily think of digitization, it should be said that in comparative considerations of these three main categories, computer information has a rather subordinate role, at least in monetary terms. There are four characteristics that characterize intangible investments much more than physical investments - and it is these characteristics that have already begun to fundamentally change the fabric of the economy:

  • Scalability - once achieved, the outcome of an intangible investment can explode
  • Lost costs - the financial evaluation of intangible investments is made more difficult because, unlike physical investments, they cannot usually be passed on to third parties later
  • Spillovers - the benefits of an intangible investment often benefit other actors than the investor, which makes it difficult to assess the cost-benefit ratio and often calls for commitment from the state
  • Synergies - unaffected by material boundaries, the effects of immaterial investments can influence and reinforce one another in ways that are difficult to predict

The bulk of Haskell and Westlake's book deals with predictions of the effect these properties of an increasingly intangible part of economic activity will have on the fabric of the economy and society - and these effects are, in the authors' opinion, sometimes dramatic.

  • The "secular stagnation", i.e. the thesis that the productivity growth of rich economies has declined sharply in recent years, could be due to the fact that companies counter the uncertain prospects of realizing their own intangible investments with unproductive defensive measures and delay investments - e.g. by lobbying regulatory institutions or Legal advice. The state would then be called upon to quickly establish new, trustworthy institutional arrangements.
  • The trend towards intangible investments increases inequality on three levels: 1. Inequality of income, because dominant companies in the intangible economy are in the recruiting competition for the "star performers of symbol manipulation" and remunerate them in a princely manner compared to other employees. 2. Inequality of prosperity, because the search for synergies further strengthens rich urban regions versus disadvantaged regions. There is a high willingness to flee large fortunes, which makes it difficult to tax them. 3. Inequality of social recognition, because the losers of the new immaterial economic order often feel that they are culturally underestimated and can thus be mobilized in a populist way.
  • For its part, the infrastructure of an intangible economic system is crucially based on intangible factors such as the level of trust and social capital that a location can provide.
  • Financing models and management models of an intangible economic system will also be shaped by the difficulty of evaluating individual investments. Some companies will develop open cultures of enabling in the competition of creativity - others, however, perfect the strict control of their employees in order to avoid unfavorable spillovers to the outside world.

The authors see some difficult challenges for politics. Overall, they expect the state to play an increased role, for example in subsidies for research and development, but also for other intangible investments, in which private investors otherwise hold back due to unfavorable distributions of their own and third-party returns. States must create clear rules and also markets for intellectual property rights and intangible assets such as data. Careful urban and regional planning must create the conditions for immaterial exchange and synergies. Innovative tax systems make it easier to finance intangible investments, with the state stepping in as an investor in an emergency to achieve optimal investment levels. This also includes state investments in art and culture, as well as in training and further education. All of this requires a competent, corruption-free state administration that is equipped with sufficient financial resources. Since the state should increasingly act as an investor, the authors recommend that, on the other hand, it should increasingly try to gain financial profits from successful investments in order to increase its scope for action without blatant tax increases - for example by holding shares in innovative growth companies. It is also clear that political persuasion will be necessary in order to win support for such a model of a new, interventionist state at the ballot boxes. So far, investment and infrastructure issues have not been at the center of the political debate - this will have to change. Small, open national economies - like Austria - could have advantages in the new policy fields, provided they succeed in exploiting their strong social cohesion and manageable structural sizes. Nevertheless, it must be clear, Haskell and Westlake warn in conclusion: Coping with all of these tasks under conditions of growing inequality is a major political challenge.

Although some of the predictions in Haskell and Westlake's “Capitalism without Capital” are quite speculative, as the authors frankly admit, the book creates an overall convincing synthesis of some topics that have been discussed with a certain uneasiness in recent years: negative trends are becoming visible - in productivity, in inequality, in democracy, in the separation of the economy from realities - and yet it is uncertain where we are going. Haskell and Westlake repeatedly emphasize that the transition to intangible investments does not take place in one big, disruptive leap, but rather as a slow shift in the weight of the economy. But they show that it is possible and necessary to think the new challenges together, in a broad conceptual framework that follows the inner necessities of economic developments. The policies that appear to be needed here are varied and will require persistent work. But now it becomes clear what the name of the game is that wants to be played.

A small, open economy like the Austrian one has good prerequisites to move quickly on this playing field. The behavioral economic education prepared by authors such as Daniel Kahneman, for its part, has shown that the citizens who democratic politics has to serve are not rationalistic machines, but people who want to be addressed in the appropriate way for the sake of general welfare to optimize in the sense of happiness research. Taken together, these two new conceptual tools tell us: There is a lot to be done urgently, and there is no longer any room for petty politics of the old kind - so let's get on with the new!