After all, it is hard to lend money to someone if you are unsure if they will repay it.
Economist Adam Smith was talking about people’s values, beliefs and preferences in the Theory of Moral Sentiments back in the 18th century.
And modern economists are now returning to the subject having spent the past 100 or so years focusing more narrowly on economic self-interest and only more recently on behavioural finance to unpick why people do or believe what they do.
As the Economist magazine notes in its review of Mark Carney and Minouche Shafik’s new books, Value(s) and What We Owe Each Other, respectively: “As money becomes the primary or sole measure of value, society loses the ability to distinguish between acts of wealth creation that deserve to be heralded and those that do not.”
At the other end, the inventors and entrepreneurs are grappling with similar issues. Massachusetts Institute of Technology’s latest bimonthly Technology Review (TR) looks back over the two decades since its first list of its top 10 breakthrough technologies and asked: “Have these technologies made our lives not just more convenient, but better in ways we care about?”
It uses an Ipsos/Social Progress Imperative survey asking people from 13 countries what they should prioritise more, social outcomes or economic growth, to uncover the generational gap between people. For those under 50, social outcomes were the majority preference. For those aged 50 or older, it was clearly economic growth.
MIT professor Scott Stern’s told the TR: “Very often the decisions about innovation and technology are about its economic impact. There is nothing wrong with that. But are we directing the economic rewards to areas that will advance social progress?”
Similar to Stern (and Harvard’s Michael Porter’s) Social Progress Index, University of Cambridge’s Diane Coyle analysis of the wealth economy effectively asks: “What is the technology doing for people?”
Amos Barshad’s excellent report, Inside Israel’s lucrative — and secretive —cybersurveillance industry, for Rest of World uncovers moral uncertainty how graduates from the Israel Defense Forces’ 8200 unit use their knowledge and skills to found cybersecurity companies that export their cyber weaponry worldwide (H/T Neeraj Kamdar).
The question is especially worth asking as the speed of innovation and funding for further research and development are increasing.
But getting the fruits of these advances into people’s hands more widely will be a political and social challenge.
To take one example, will all be able to capitalise on the longevity escape velocity that comes when advances in medical technology means a person’s life expectancy increases by more than a year for each year they live? Or will only the rich benefit?
They have already effectively neutralised one certainty, the requirement to pay taxes, but if the great leveller in death also no longer applies then trust could quickly break down. And it leads to extreme, effectively nihilistic behaviours. This is already happening.
Felix Salmon in Wealthsimple magazine picks apart some of the generational angst now it seems “value in stocks, art, precious metals, whatever,” is no longer inextricably tied to “fundamentals”.
Salmon’s four-letter acronyms, YOLO, ZIRP, SWAG, identifies how the internet is changing finance. Salmon’s thesis was formed in the era of zero interest rate policies (ZIRP) as “getting rich slowly became much harder after 2008 because the financial crisis effectively killed compound interest”.
YOLO – you only live once – as an attitude “out of Wall Street’s book, take big risks, and try to score that home run,” Salmon added.
Combined it means there is a desire for SWAG – traditionally silver, wine, art, gold – that could appreciate or fall in value but generally bring no income, unlike bonds, equities or rent.
Salmon added: “SWAG of today is generally different: it is Bitcoin or non-fungible tokens (NFTs) like CryptoKitties or Hashmasks. It is Supreme skate decks or Yeezy sneakers. It is baseball or basketball cards, be they physical or virtual. It is prints from the hot Brooklyn artist Brian Donnelly, better known as KAWS, or rare bourbon or obscure vinyl.”
Or it is Mike Winkelmann, a graphic designer from Charleston, South Carolina, better known as Beeple. His sale of Everydays: The First 5,000 Days for $69.3m (using the Ether cryptocurrency) as an NFT of the digital collage of Beeple’s earlier art.
As Salmon noted: “The common denominator is artificial scarcity — with a lot of emphasis on the artificial since a lot of these things are easily re-producible except for their blockchain watermarks….
“If you want to understand the world we live in, look to the hypebeasts, not the Wall Street Journal.”
While the SWAG winners are mainly the market manipulators, it is for the YOLO crowd, as Salmon said: “A fun game to play, and it is a community. And especially now, in the middle of a pandemic, what else are you going to do?”
Focus on rebuilding trust is one answer. The generational conflict between so-called baby boomers born in the generation after the Second World War and those under 50 who face the consequences of the trillions of dollars in wealth transfer to the older people underlies the concerns about ZIRP. Zero interest rates effectively increase current asset prices, benefiting those who already own them. Pension locks means retirees’ incomes go up with inflation.
Massive debts do little beyond a short-term, quarter or two, boost but will increase future tax rates over the next 20-plus years, noted economist Tyler Cowen. Throw in the chances that these rich, old people might never die or stop having kids and working and nihilism seems a suitable response for millennials and the gen-Z.
But there is one way to join the generations and rebuild trust. Find out more in next month’s GCV magazine but thoughts and views most welcome to jmawson@mawsonia.com
