When historians look back at the 21st century, they will describe us as a global society deeply weakened by incomplete measurement and false precision in how we view our economy.
This challenge feels pervasive.
The U.S. economy, on paper, looks pretty good over the last few years. Yet it feels like there are huge “off balance sheet” costs not being properly measured or accounted for. It is hard to ignore the fact that people in the United States are deeply divided. Trust in government and each other is eroding. But because these trends are hard to precisely measure, it is hard to specifically value the cost. You can make a strong argument that we in the U.S. are unwittingly trading social capital dollars—internally and globally—for financial capital cents.
The same goes for many of the debates around attention and the economy. As people spend more and more time glued to Netflix, YouTube and social platforms, the case could be made that despite the popularity, utility and profits being generated, we are unwittingly making a poor trade as a society and under-valuing our time. We are giving up more in our time and attention than the media is worth to us.
The news media can be seen as having this problem as well. Sensationalist headlines, drummed-up controversy and divisions might drive the bottom line but at the expense of eroding our collective understanding of truth, an immeasurable cost that is hard to value.
And, of course, most obviously, there is the environment. It should be obvious to any thinking person that, when it comes to our planet, we have been improperly accounting for and under-pricing the impact on the environment—largely, I believe, because we have never been able to agree on how to measure it.
The often proposed solution to many of these problems is double and triple bottom-line accounting that is in vogue in business schools—where businesses separately account for their financial, social and environmental impacts. I, however, am not a fan of these solutions. I think they are lazy, and generally unhelpful, because they broadly fail to deal with the actual issue: How do you trade between competing “goals” when the going gets tough? Without a way to reconcile your bottom lines to a single bottom line, these solutions can be little more than idealistic lip service.
In contrast, I am a big fan of Hayek and his view of markets as information machines. I think the solution should be to upgrade our free markets to internalize and value many of the factors currently viewed as hard-to-measure externalities so that our markets can properly continue to run.
We are entering an era where John Stuart Mill’s classic liberal ideal of the harm principle is no longer descriptive of our world or practically useful. We will need to figure out how to economically value and trade all sorts of assets that were historically not considered. Or we’ll have to revert to more centrally managed models (as the Chinese are).
Going the centrally managed route seems to be what some people are advocating. Recently, I have frequently heard the idea that communism wasn’t wrong but just too early and needed massive data-platforms and AI to make it work. It is easy to see how technology can empower centralized models to work, and it is seductive to make grand statements about needing to move beyond market capitalism. But the calls globally for greater regulation represent people giving up on market solutions.
The problem is that, historically, centralized models have come with all sorts of strings attached—and the entire American model was an attempt to get away from kings and centralized power. If anything, history suggests that technology should make us more terrified of centralized authority than we ever have been before. The grass does look greener on the other side, but it rarely is.
What is harder to see is how we, as a global society, can properly internalize all of the aspects of our social, attention and environmental capital to keep the world running. We will have to use some sort of framework to assign numerical value to many aspects of our lives if we hope to be able to freely trade them. Doing that comes with all sorts of challenging issues around privacy.
What is clear is that we are in an era where the market is enabling us to metaphorically “frack” several planet-scale human resources like social capital, human attention and the environment, which are hard to value. In the future, smarter, more enlightened people than we will have a measurement framework for this stuff. And when they look back, what they will likely see is that all the advances we have made turn out to not be worth the currently unmeasured cost.
This has happened before. There is an argument that the colonization of North America, British imperialism and the cultural revolution in China all follow the same pattern. People understood the benefits, but the costs were not properly understood or accounted for—and it led to poor decision-making in places.
What worries me is the fact that the stakes have never been higher. We can’t afford to not measure or account properly when we are playing on a fully global scale with our most precious resources.
There is such a thing as real growth in the world and real prosperity, and capitalism is great at delivering that so long as the inputs are correct. But, when you are measuring the wrong inputs, it is easy to accidentally see profits where there are actually net losses that are just poorly measured.
I have seen this firsthand over and over in my professional career. You get what you measure, so you better measure the right things—and measure them well.