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Emergence of the Uniquely Human Economy
At its core, the human experience has always been about the manner in which we acquire the resources necessary to survive. Long ago, what it meant to be human was not so different than what it meant to be any other omnivore – wandering the lands foraging or seeking game to hunt. Sure, our tools were a little more advanced, but the manner in which we experienced life was fundamentally the same. That all changed with the advent of agriculture. Through farming, we could bring of source of needs to us rather than going on in search of it, and we could actively manage the production of our resources so that a single person could now make enough food for several people on a consistent basis. Farming is the very basis upon which all civilization is built, and it changed the experience of being human at a fundamental level. With the advent of agriculture, increasingly large numbers of people were developing skilled trades and specializing exclusively in a narrow range of labor. They would become very good at what they do, produce lots of it for other people in transactions that were either barter or which used some form of currency, and acquired the things they needed in this manner. In the largest of cities, the majority of people didn’t even do anything related to survival anymore, but rather provided goods and services that improved quality of life, or allowed others to be more productive in their own work. The experience of being human was now about production and trade, something that nothing on earth had experienced before.
Then around the 18th century, things began to change once again, as we entered the industrial revolution. Machines began doing our labor for us, which was fine, at first, because this created new types of jobs as we became stewards of these machines. We tend to think of the industrial revolution as being something out of a history book, though, as people overlook the fact that it only marked the beginning of a larger trend: automation. It is only now in the 21st century that we are beginning to see the end of the automation era, and what it means to experience being human is something quite different than it was during the 18th century. Through advances in computer technology, we are automating our automation – creating more while relying ever-less on the sweat of our brows. Even my own job as an economist, once considered a high-skilled function that would not be easily replaced, is automated as I focus increasingly on writing algorithms to collect and test data automatically, or perform analytics and reporting functions for clients with the push of a button. Rather than relying on physical labor to accomplish these things, I, like so many others, are finding themselves relying on their creativity and ability to innovate to remain relevant in the workforce. Nearly all those things which people could do that animals could not are now being performed by machines and computers, as the labor market forces us to distill the human experience down into something that is unique only to humans.
The image above illustrates the basic flow of resources throughout an economy. Those things shaded in orange are pieces of something called the Cobb-Douglas Production Function, which states that the total volume of our production is a function of the number of people working (labor), the volume of tools available to those people (capital), and the degree of productivity achievable by each (sometimes called “knowledge” or “technology”). Since the industrial revolution, our tools have been replacing us, which should have been obvious when you look at the image and see that our efforts to create capital is a one-way street; we can create capital, but capital cannot create us, yet capital can create itself through automation.
The portions of the image with bold borders are that thing which makes humans unique. Those three little squares represent everything that distinguishes us from animals and machines, and it is what we have been increasingly relying upon for the last several hundred years until the modern age in which we begin to see the majority of the labor force relying on that as the way they acquire resources. Rather than searching for resources, or working to produce them, now our survival relies on our ability to develop innovative new methods of production. This is accomplished through a simple process known as knowledge spillover: You have your set of knowledge, then observe something new either occurring by chance or acquiring a bit of information from someone else, and by taking that new bit of information and placing it within the context of your own individually-unique set of knowledge you develop some innovative new interpretation or application of the information. This is the basis of economic growth established by Joseph Schumpeter in the mid-20th century; knowledge-based growth.
As we have refined the human experienced to exactly that which is unique to us, we have identified that single thing which humans have that cannot be replicated: inferential thought – our ability to develop abstract concepts from observations and use those concepts in ways unrelated to the manner in which we developed them. The implications of this on the future of our economy are profound. If we ignore this trend, then our current fiscal emphasis on capital will eventually put us in a position in which our needs are being met but we are left in stagnation. This is eventual outcome for proposals such as universal basic income. By contrast, by altering the nature of our fiscal stimulus to facilitate the new post-automation epoch, we may find ourselves in a state of perpetual advancement, invention, and innovation; developing ourselves and our civilization at an ever-increasing rate, able to overcome even the most daunting of challenges to the continued survival of our species.
About the author:
Michael Taillard is a private economic consultant, emphasizing applied strategy and quantitative, behavioral research. He has worked with private companies from all around the world, federal and local government and political organizations, international nonprofits, and a variety of media outlets. He has taught at universities since 2002, and currently holds adjunct status in the graduate schools at Central Michigan University, as well as Bellevue University.
Market Insanity: A Brief Guide to Diagnosing the Madness in the Stock Market
is an engaging and accessible primer which applies modern behavioral finance to equity markets. It helps readers understand how logical investment decisions can be betrayed by what Taillard calls “the insanity,” all those behavioral quirks which cause us to achieve less than optimal utility.
- Provides detailed and accurate descriptions of the most relevant behavioral anomalies for finance
- Entertainingly written by a veteran consultant with 15+ years experience helping companies explain anomalous finance behavior in non-economic language
- Shows how educated finance professionals can use behavioral insights to help build finance solutions
- Addresses the implications for equity markets in deviations from rationality paradigms
- Draws on a vast range of literature in explaining anomalous behavior, including economic psychology, evolutionary psychology, anthropology and animal behavior
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