Tuesday, February 28, 2017

Corruption and Growth: A Link and a Comment

Here’s a link to one of today’s posts at Naked Capitalism.

The article is worth the read.

We first pause here to note Nobel prize winner Milton ‘Friedman’s assertion that: "there is one and only one social responsibility of business–to use it(s) resources and engage in activities designed to increase its profits,..”  could be the motto of a sociopath.  He does continue with the qualification: “..so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”  Since, progressively, even since he wrote this in 1970, corporations have been writing the rules which define what is open and free competition, and what constitutes deception and fraud, that qualification has become quite empty.

The issue here, though, is the question:  “How much of the growth in the nation’s GDP is fraudulent?  How close to reality are the figures which track our nation’s economy?”

This gives one cause to wonder:  Is the economy even growing at all?  Or is it actually contracting?  The reality of the data on China’s economy has been called into question.  Why not the data on ours?

 The question is especially relevant since no bankers were ever prosecuted after the 2008 financial crisis. The fraud involved, and there was a lot, was apparently all legal. With overturning the Dodd-Frank law under Trump, clearly the incentive for fraud will increase.  And if we consider the consequences of the Volkswagon emissions scandal and the Takata air bag scandal, producing more of something imaginary would seem to be preferred to the risks of producing something real.

Now, as the economy pushes the constraints of reality, accurate response to stressors is increasingly required.  And this requires accurate information as to the size and nature of those stressors. 

Objective reality is independent of one’s opinion of it.  The “Post-Truth Trumpian Worldview” is unlikely to provide the proper responses to any future crises.

Saturday, January 28, 2017

On the Social Benefits of Taxation II

On The Social Benefits of Taxation II                                               

Taxation has historically been considered to be a burden on the productive capacity of an economy.  However, it is easy to show that taxation can increase the efficiency of an economy by rendering inefficient producers unprofitable, and so eliminating them.  What is eliminated from a particular market by proper taxation are the most marginal producers, and the least avid consumers.    Under judicious taxation, as a result of this increase in efficiency in the use of resources, the services of government can largely be provided for for free.  That is, resources which would be applied in some inefficient productive process, and so largely wasted, may be applied more efficiently in providing economically useful government services. And many of the services provided by government, by eliminating many of the costs of transaction and overhead that producers would otherwise bear, also act to increase the efficiency of the private productive economy.*  Inadequate taxation, and the necessary reduction in economically useful services purchased with these taxes, far from increasing the competitiveness of an economy, decreases it, and nations with an inadequate public sector are at a competitive disadvantage with respect to foreign producers in countries with more robust public sectors. Further, even with the light tax burden, the citizens of countries with small public sectors are less provided for, and are a greater burden to the industry of that country, than countries with a larger government service sector.  We show this in Diagram 1.  Where the marginal benefits attained at higher cost are forgone, the resources which would have been spent to obtain those marginal benefits are instead available to be expended more efficiently in other sectors of the economy.

In the diagram, the tax wedge is the difference between the price paid, P’, and the income received by the producer, P*.  The total tax revenue, the pale green block in each market defined by: Q’ x (P’ – P*) is the welfare received by government.  The lower brighter green triangle is the producer surplus; the upper brighter green triangle the consumer surplus. In each particular market, with the application of a tax wedge the ratio of social welfare obtained to costs, that is resources expended, increases from about two to one, roughly the ratio of the all the greenish areas to all the pinkish areas in each market, to almost four to one, the ratio of the solid green areas to the solid pink area. Although we have drawn the diagram for two particular and identically composed markets, it is apparent that for a wide variety of supply and demand diagrams, and thus for a wide variety of economic sectors, the application of a tax wedge will result in a large increase in economic efficiency. By implication, the opportunity costs of the small amount of marginal benefits forgone are huge.  Indeed, we may expect this improvement to be even better than it initially appears, since we would expect the most marginal producers to be those most eager to externalize their costs in order to remain competitive.  Pressure to externalize costs is thus also reduced on the more efficient producers. The economic results from failing to apply a tax wedge in a market are, apparently without exception, far inferior

Historically, of course, this relatively small region of forgone welfare has been labeled “deadweight loss,” whose existence has been considered a counter-argument to the efficiency and usefulness of taxation. Indeed, the very pejorative “deadweight loss,” has been used by those ideologically opposed to government intervention in an economy as a justification for their position. However, their argument, and the economics profession as a whole, has totally over-looked the high opportunity costs involved in the creation of these marginal benefits.  Taking these costs into consideration inverts the conclusion:  The gain in freed resources, in almost any reasonable scenario, totally outweighs any gain involved in wastefully spending these resources for these purposes.  Indeed, in the scale of economic activity, these resources are much more wisely spent elsewhere.  And the tax wedge causes this to happen.  Far from being a burden, taxation in a market, and at what is traditionally considered a rather high level of taxation, can yield much closer to optimal economic results. .

I leave it to those ideologically opposed to government intervention to find those exceptions. I do observe that the apparent requirement for monotonicity in the supply and demand curves would seem to make finding these exceptions difficult. 

One interesting argument, though, which remains, is the argument from liberty.  This argument would seem to suggest that the wanton destruction of scarce resources is, somehow, ‘liberating.’ And this would seem, for example, to be the argument against higher gasoline taxes in the United States. The case shown here is that a higher gasoline tax, with money more efficiently spent on public transit, would free up resources for everyone, as the European experience seems to show.

There does remain the issue of determining the balance between efficiency and quantity of production in any particular market required for the proper functioning of an economy.  Considerations of scale indicate that, contrary to what is shown in the diagrams, the first unit of anything is seldom the most efficiently produced.  Rather, there is an optimum scale of production, that which minimizes the average cost, (This ignores issues of demand.) and we must consider this to be true for an entire economy as well as for a particular production process.  While with this consideration the improvement in economic efficiency would not be as great, it must still be expected to be impressive.

Further, it should be easier to tax economic wants as opposed to economic needs.  (Although see problem three, below.) A more efficient economy, however, needs less, and is more capable of servicing wants.  

 “Deadweight loss” is also found in other market situations.  It would seem that, at the least, these other situations also need to be re-examined.

For example, the most marginal producers and the least avid consumers in a particular market can also be eliminated when the costs of production are increased by the costs of meeting a regulation. These kinds of regulation also can increase economic efficiency.  Unlike the cost to the producer imposed by a tax, however, the government does not directly recover the costs imposed by such regulation. These costs are instead spent meeting the requirements of the regulation. In Diagram 2, P* is the price retained by the producer, which is the price P’ paid by the consumer, minus the cost to the producer of meeting the regulation.

Instead of the tax wedge, we have the revenue in the area Q’ x (P’ – P*), revenue which with a tax wedge would be going to the government, going instead to pay for meeting the regulation.  The benefits are reaped by other sectors of society. A regulation against pollution, for instance, benefits the consumers of an otherwise contaminated resource.  As such, it essentially represents a rightward shift in the supply curve for this resource.  (Similarly, an increase in pollution of a resource represents a leftward shift in the supply curve of that resource.)   This increase in economic efficiency does provide compensation to the economy at large for the cost of the regulation. 

Further, the purpose of regulation is to attain some benefit for the economy which cannot be captured in some unregulated market, and which is presumably greater than the cost of the regulation.  While one might hope, and expect, that the benefit to society of the regulation would be at least equal to its cost, it can be seen that, because of the increase in economic efficiency, society can gain even when the direct benefits from the regulation are substantially lower than its cost to the producer.  (For the same reason, although one can hope, and the government should of course try, to make sure that the direct benefits to society of its expenditures are equal to the costs, even when the direct benefits of government expenditure are below their costs, there can still be a net gain to society, if these resources are not too thoroughly wasted.)  Certainly, in the provisioning of an economy’s necessities, the inefficient application of scarce resources may be necessary. However, even in these situations, alternative and more efficient means of supply may be found.   

Interestingly, however, applying a tax wedge, or imposing regulation, or other forms of government intervention, such as price ceilings or price floors, are not the only ways to increase economic efficiency.  Monopolies also eliminate much inefficient production of goods and services, as shown.

Monopolies produce at quantity QM, (Diagram 3) the quantity where the increase in cost for producing another unit equals the increase in revenue for selling another unit.

 This quantity maximizes their profit.  (This is different from a competitive market, where the sum of production of all firms would be where the Marginal Cost, or the Supply curve, intersects the Demand curve.) With monopoly, the striped areas are the costs (Red striped) and benefits (Green striped) forgone by society. These resources which would otherwise be consumed, these costs, may be more efficiently applied to other sectors of the economy. The solid areas are costs borne (Red) and benefits provided (the Greens) under monopoly.  The light green regions are monopoly profits which, since a monopoly is a part of society, does count as an increase in social welfare. We may expect something similar with monopsonies, and to a somewhat lesser extent, with oligopolies, and oligopsonies. With oligopolies and oligopsonies, we would expect a greater elimination of inefficient production when they are collusive, and a less but a still significant degree of elimination when they are competitive. With oligopolies, although some inefficient producers may be protected because of the higher prices resulting from the reduced quantity produced, (See: anamecon.blogspot.com/2012/02/oligopoly-and-economy.html) a reduced quantity is produced, and those firms which remain in production limit their production to their most efficient processes. The so called deadweight region of forgone costs and forgone production lies between the kink in the demand curve, the equilibrium point for oligopolistic producers, and what would be the competitive equilibrium which would result from the production of many small firms. 

To return to monopolies, the great majority of benefits accrue to the owners of the monopoly, typically a small minority of the members of society.  The consumer benefits, on the other hand, are much less, and much reduced from the competitive case. Indeed, by comparing the tax wedge in a competitive market with the monopoly case, we find the social welfare under monopolies is exactly the same as social welfare under a government tax wedge, where the wedge is such that the marginal cost to producers equals their marginal revenue.  The competitive case results in a more equitable distribution of benefits between consumers and producers. Of course, consumer benefits per se are also much less under taxation, the same as under monopoly, and the producer surplus much less. However, the government spreads much of its income widely. It is, in its way, both a consumer and a producer. It re-distributes consumption, and capitalizes production, both directly, through capital investments, and indirectly, through subsidy of production, and creation and maintenance of infrastructure. And all of its expenditure, purported to be for the public benefit, does, one way or another, enrich various sectors of the economy.

One problem with the tax wedge, however, because it favors the more efficient producers, it also favors the economic drift toward concentration of ownership, and the creation of oligopolies and eventually monopolies. Narrowly held monopolies cannot be expected to spread their profits.  Neither can monopolists be expected to spend their profits to provide services which increase the efficiency of the larger economy.   Monopolies once formed, and where not widely owned, further to aggravate the natural tendency of economies to concentrate wealth and power, a concentration which leads to economic instability and collapse. This is especially so because the power concentrated in monopolies tends to translate into political power.  And the monopolist must be expected to use this power to further his power, mitigating the impact of the tax wedge on his revenue.  

A second problem is that producers which escape taxation will eventually displace those producers which are subject to taxation. The result will be a reduction in both taxes collected and in economic efficiency.  This problem must be considered especially acute in open economies, where tax paying domestic producers can be expected to be displaced by non-taxpaying (and hence often less efficient) foreign producers.  The interesting implication here is that, while a nation’s economy may be producing less and consuming more, as an increased share of what is consumed is imported, (much of what is considered production actually either enables consumption, or is a form of consumption,) that economy need not be any better off for this increase in consumption.  Because of the decrease in economic efficiency, fewer consumables will be efficiently used, and more of this consumption will be squandered.

A third problem is, of course, the politics of taxation.  Nobody likes to be taxed, and the powerful, more than others, are capable of avoiding it. (This also bears on the second problem.) This first suggests that the markets which serve the wealthy will be the least efficient, even though these are the markets where an economy can most easily bear the loss of marginal producers.  (Marginal producers may be needed in the production of an economy’s necessities.)  And this further suggests that a disproportionate share of an economy will be dedicated to servicing the wealthy, even at the expenses of the necessities of that economy, such as maintenance of infrastructure.  A recent study has shown(1), for instance, that in the United States today, no policies are enacted by the government which are not also approved by the wealthy elite.  An implication of this is that the tax burden upon this elite can only be expected to diminish, and thus that the burden of taxation on the rest of economy and the population can only increase.**

One final consideration.  As an economy increases in efficiency, it inherently becomes less stable, and more vulnerable to collapse. An efficient economy becomes dependent on its efficiency in order to be productive enough to sustain itself.  The greater the efficiency, the greater its dependence.  A reduction in efficiency will result in a reduction of production, perhaps sufficient enough that that economy can no longer sustain itself. 

A particular consideration regarding improvements in efficiency brought about by regulation and the tax wedge, where these increases in efficiency are already established, is that removing or even merely reducing these factors will result in a reduction of that efficiency, and a resulting reduction in the productive capacity of that economy.  That economy may no longer be able to sustain itself. With a critical reduction in production, cascades may result, and the possibility of sectoral and even general collapse.  Great care, therefore, should be exercised in the reduction of the size of tax wedges, or the elimination of any regulation. 

*Efficiency is a multiplicative factor in production, not an additive one. Although unlike thermodynamic efficiency, economic efficiency may be greater than 1, it is also subject to diminishing returns, at least where matters of the production of real goods and services are concerned.

**This statement assumes that the wealthy are actually taxed at all, which my studies indicate is not, in any real sense, the case. Taxation of the wealthy is merely nominal.  Real taxation of the wealthy is only against their future consumption, a future which, for almost all of the wealthy, is ever receding.  However, a merely nominal rate of taxation is not without real consequences for an economy.

(1)Testing Theories of American Politics:  Elites, Interest Groups, and Average Citizens   Martin Gilens and Benjamin I. Page  https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf

Thursday, January 19, 2017

On the Social Benefits of Taxation

On the Social Benefits of Taxation

Here we present a proof, or at least a demonstration, without words. Or labels.  For the cognoscenti, or even just those having some familiarity with Econ 101, the diagrams as they are should be enough to work out the point. And if not, labels to the diagram and explanation will be provided next week.
The result is quite robust.
Please enjoy.

Saturday, December 31, 2016

Knowledge and Power

Knowledge and Power.

Knowledge is not power.  Knowledge is the complement of power. Knowledge without power is impotent.  Power without knowledge- is worse.  Knowledge and power are different things, which together can combine to achieve great purpose.

Knowledge serves as a multiplier of power.  Applicable knowledge can greatly increase the effectiveness of power. Conversely, power applied without the proper knowledge will at best be wastefully and inefficiently used. The effect of the application of that power will be distorted from and diminished from its intention.  The situation resulting from such an application of power may even be worse than if that power had never been applied at all.   Even when power badly applied does achieve its goal, the expense of it applied without proper knowledge will be much greater than necessary, the result invariably inferior, and the consequential damage due to those aspects of that power misapplied may be extensive.  Power will be wasted,    Its sources may be compromised.  Its objectives may be irretrievably lost. 

The more demanding the situation, the greater the constraints, the greater the requirements for knowledge.  And the greater the consequences of ignorance.

Against this, knowledge comes at a cost, and this cost rises with the increase in the quantity and quality of knowledge acquired, and may become prohibitive. Situations arise, therefore, where the costs of the knowledge necessary for the proper application of  power, and the costs involved in the actual application of that power, exceed the ability of the actor to bear. These costs may even exceed the return on even judiciously applied power.

Knowledge is not to be confused with information. Knowledge comes with the ability to weigh information, and properly weighed information contributes to knowledge, and thus, recursively, to the ability to properly weigh information.  Conversely, improperly weighed information may actually detract from knowledge, and, recursively, reduces the ability to properly weigh information, and thus, the ability to acquire knowledge.

As a multiplier of power, proper knowledge of how to apply power will amplify that power.  However, one of the most important uses of knowledge is to know when to apply power.  And when not to.

Friday, November 11, 2016

After the Election

Here's a nice post mortem of the election by Dylan Matthews over at VOX:


Trump also promised to massively build infrastructure while cutting taxes.   Since these are mutually exclusive it will be interesting to see which he chooses.

More military means less of everything else, including the things we have the military to protect in the first place.  Like rights and such.

Getting rid of the EPA means more rural people (who mostly voted for Trump,) will be buying their water in stores.

Because of reduced taxes and government spending, the demand side of the economy will contract, leading to higher amounts of money being taken out of circulation.  Thus continued deflation. And low growth.

The rich have shown that who they really wanted was Trump, at least as indicated by stock prices.  Hillary allowed herself to be used by Wall Street.  They never loved her as one of their own.

Friday, September 30, 2016

On Hyperinflation

Previously, we asserted that the standard definition of money was in error.  Money does not constitute a store of value.   Money, fiat money, has no intrinsic value.   It only constitutes a store of demand.  In particular, it is demand on the real production of goods and services of the society whose government recognizes the money as ‘tender.’  (Money has various forms, which may also be exchanged for each other. This distorts its actual exchange value.)  Even more exactly, money is a token offered in exchange for either other tokens, other ‘forms of money,’ or for goods and services produced by the economy, or needed or used by the economy.  (We will call any of these things, or any combination of these things, (real) resources.)  Its current value is roughly determined by the ratio of the flows of goods and services to the (opposite directed) flow of money. The flow of money is nominal, in the sense that, for a given rate of flow of goods and services, the greater number of units of money in the countervailing flow of money, the lower the value of each unit. Thus, the value of the unit, the dollar, is determined by the ‘physical quantity’ of goods and services exchanged in the economy divided by the number of units, of dollars, those goods and services are exchanged for.    Money’s value is not directly affected by the amount which is exchanged for other forms of money, nor the (lesser) amount of goods and services exchanged in barter.

Aside from the flow of money, there is a stock of money, just like there is a stock of real resources and assets, which, at any given moment, are not being actively exchanged. The standard definition of money implies that this stock of money constitutes an asset, a 'financial' asset. And therefore, according to the standard definition, the value of all this money should be added to the stock of real goods, services and real assets in the economy when calculating the total 'value' of capital in the economy.  

However, money is only an 'asset' to the individual.  The total value of a society, of all its assets and production, is independent of the total quantity of money.  Money is not an ‘asset’ to society, in the sense that the ‘value’ of the total quantity of money in a society is added to the total value of society.  It is only an asset in the sense that it enables certain forms of exchange.  In this sense, it acts as a multiplier of value. (Multiplication of value I discuss elsewhere.  I only mention here that its value as a multiplicative factor depends on its distribution, and not its nominal quantity.)

Invert the usual definition.  Money has value in terms of the things it is buying. In traditional macroeconomics, money's value is given by the so called "Equation of Exchange:"  M= P x Q/V.  In this equation, M is the stock of money, the total number of dollars, P is the Price level of things, sort of  the 'average' number of dollars exchanged for each thing, Q the quantity of  things exchanged, and V the average velocity of the total amount of money.  Now this equation is usually used to evaluate the total quantity of money M in an economy, so V can change. But really, the velocity of the money in circulation does not change, so when the V of the equation changes, what it is showing is the percentage of the total money supply which is actually in circulation in the real economy, and what share of the total money supply is in savings or bonds or other financial instruments. It shows the proportions that M is divided between circulation in the real economy, and the churn, where different forms of money, bonds and other instruments of debt, are traded among themselves.  Thus, when V goes down, money is being taken out of circulation in the real economy and 'invested' in the churn.  When V goes up, money is being taken out of the churn, and put into the real economy.  

With this understanding, we can simplify the equation to:  M = P x Q,  where the terms are as described above. This can be understood in either macroeconomic terms, in terms of average price level times some quantity measure of all things exchanged, or in terms of microeconomics, as the average price of any particular good, times the quantity of that good, giving the total quantity of money, the number of dollars, (or in general the number of units that P is expressed in. which need not be dollars.) that is being exchanged for that particular good. It can be visualized as the flow of money, and the opposing flow of the good or service, in its own particular channel.

 If we rearrange, then the price of any particular good, or of the price level of all goods if we are talking about the economy as a whole, can both be expressed as:  P = M/Q.   If M increases, and/or if Q declines, the price or a good, or the price level of an economy, goes up.
We have talked about what we call the churn.  The stock of money experiences activity separate from its motion in the real economy. It is not kept in mattresses, (although in a sense it might as well be,( churning:  Forms of money are exchanged for other forms of money.  However, this ‘churn’ usually has no immediate effect on the value of money in the real economy, as long as it does not affect the movement of money out of the churn and into the real economy, or out of the real economy and into the churn.)  Similarly, barter, the direct exchange of goods,  does not affect the value of money, although changes in the amount of barter, where they alter the amount of goods exchanged for money, would change the value of money in the opposite direction.  That is, if a greater percentage of goods were being exchanged in barter, then the money in circulation would be chasing fewer goods.  This would result in inflation.  (This analysis ignores the effect of the expectations of participants, which may indeed alter the value of money in the real economy.)

Demand as debt.

Many have heard about instances on hyperinflation, and tales of wheelbarrows of money being exchanged for loaves of bread.  During the Weimar hyperinflation in Germany in 1923, before computerized money, they couldn’t print the money as fast as it was being inflated.  Bills printed with already outrageous denominations had to be restamped with denominations hundreds and thousands of times higher, before they could actually be issued, because the original denominations were already to small to be useful.

What we don’t hear about, however, are busloads of money being exchanged for houses. It would be rare, one would think, but surely, if it happened, it would be memorable.  But no one sells houses during periods of hyperinflation. Or automobiles, or appliances, or many of the more ‘advanced,’ but in the end, less immediately essential  products of an economy.

For what happens is that the monetary economy collapses onto essential goods, the most essential being food and fuel.  But the circulation of these goods, in the modern economy, and the quantity of money exchanged for them, takes up only a small portion of the market of the entire economy.  So the total quantity of money in circulation, whose value (as tokens of demand) was originally based on fact that things demanded consisted of the entire quantity of goods and services in the whole economy, is nominally much greater than the nominal value of the circulation of essential goods and services like food and fuel.  The supply of valuable goods contracts to only those which are essential.  Demand is now concentrated on a much smaller portion of the economy.  Meanwhile, the value of non-essential goods crashes

In our equation:  P = M/Q, then, what first happens is that M increases, not as a result of government printing, but as money is taken out of the churn, and put into the real economy. This is mostly rich people panicking, although ordinary people are also taking their money out of the banks.   As this process progresses, the economy begins to contract onto essential goods. Thus the quantity Q of goods exchanged for money decreases.  

Imagine that suddenly, all that anybody wanted to buy in the economy was bread.  With over $!.4 trillion of dollars cash in circulation, M0,  M2 the larger measure of less liquid money is over $13 Trillion, M3, still money but no longer counted, we may estimate, from recent trends at at least $19 Trillion. If M2 tells us the amount of money in mattresses, the difference between M2 and M3 we might consider money buried in backyards.  It will all come out.  With the market for bread at the outset about 1 billion dollars the price of that bread would become extremely high extremely fast.  Of course, there are other forms of food, which may be regarded as equally essential, (although high priced foods might also be priced out of the market.)  The size of the retail food market in the US is around $50 Billion per week, or  $2.5 Trillion per year.

 And this is what happens at the outset of the progression of hyperinflation.  The government doesn’t have to print money.  The money is already out there. Some of it is just being used for ordinary business in ordinary ways. Much, perhaps even most of it, is in the churn:  Ordinary savings accounts for ordinary people, high powered financial instruments for the wealthy.  But as runaway inflation, and then hyperinflation begin to take hold, people increasingly see money as overvalued.  Durable goods and fixed assets also begin to be seen as overvalued, at least in terms of money.  And they see other people seeing that, too. Therefore everyone wants to exchange their money for (basic) goods as fast as possible. As the demand becomes ever more concentrated on essential goods, the velocity of money also increases.

 As inflation progresses, increasingly goods become sorted into their essential value. The value of non-essential goods and assets decreases, relative to essential commodities.  Money becomes preferentially spent on those of greatest essential value, and the prices of these increase the most as demand becomes concentrated on them.   Those holding money in savings and other financial instruments, withdraw and liquefy them, and bring them into the real economy, where they add to the already increasing forces of inflation.    

The government faces a choice:  Either to take money out of circulation  as fast as possible, or to print money.

The proper response of government is not to print money in an attempt to stay ahead of it. This merely aggravates the problem and drives the accelerating inflation.   While initially, government issued money is not the problem, as the government issues money at an ever greater rate, the entire nominal value of money in circulation does becomes government issued.

The proper response of government is to take money out of circulation as fast as possible.   One way is a high sales tax. However, this will not prevent the entry of money into the circulation of the real economy from the churn, the stock of money circulating in banking and finance. Therefore, the liquid assets of the wealthy, and foreign holdings, must also be frozen, and offshore financial assets prevented from repatriating.  So far as the wealthy control the government, this is resisted. 

When the wealthy become aware, not only that the stock of money is too greatly over valued, but aware that others also know,  we may expect a rush into more tangible assets, with ordinary people, by which I mean basically the entire 99%, priced out of essential goods and services.

Sunday, July 31, 2016

The Survival of the Marginal Part I

Consider Darwin’s Finches.  Which changed first?  Their bodies?  Or their behavior?  And why did they change their behavior?

The idea of the survival of the fittest is a mistaken understanding of the dynamics of evolution.  It is not those best adapted to an environment who win the game of life.  It is the weak, the losers in the competition for supremacy within their environment and within their species, who in the end triumph.  The fittest either come eventually to die, clutching the residues of their spoils, or survive on as prisoners, trapped inside the bounds of the field of their victory, hemmed in by the descendants of those they once drove forth into hardship.

For when the strong drive out the weak, what happens to the weak?  In their home environment, the weak may be well adapted, both physically and behaviorally, to exploit its resources, and prosper.  However, the weak must also compete against those like them, but stronger, both for those resources, and for the right to reproduce their kind.  But since they are the weak, they are outcompeted for food and reproductive rights by the strong. 

In a crowded environment, the strong  may physically drive them into the margins.  Even if the weak are not directly confronted by those stronger than they are, they may still be faced with starvation.  Certainly, they face an unpleasant choice.  They may choose to endure, and eventually die, perhaps without issue.  However, they may also choose to depart, and move out into the margins of their former environment.     

The margins will not be as favorable to the weak as was the center of the ecology that the strong still claim. The behaviors which served them in that environment will no longer be adequate, and different behaviors will be demanded. To survive, the weak will be forced to adapt. (And some will be prepared for this, because their old behaviors will have failed them, and they will be ready to change.) In particular and in general, a greater variety of behaviors will be demanded. Physically, they may be mal-adapted to their new environment, and their new behaviors must first compensate for this. Different food sources must be pursued. Different locations for food and even different varieties of food must be sought, because those sources they once relied upon will no longer be adequate, if they are available at all.  None of the sources which they once depended on will be available in sufficient quantity.

Meanwhile, their enemies may follow them.  They may be forced to deal with new predators, who may see them as a new opportunity for predation.  They may be forced to deal with new hazards. And their survival will depend on their ability to adapt their behavior in response.

In the old environment, the strong of the species are in a sense optimized, or will evolve to become so, both physically, and behaviorally.  And when they do become optimized,  the strongest will be the most fit to that environment, and any individual who deviates, the carrier of any other random mutation, will be inferior in its ability to compete, and thus selected against. As long as their environment remains constant, so will the species, and for these individuals, and their descendants, the process of evolution effectively ceases.  The only remaining outlet for change, a domain of random drift, within which the external pressures of selection are essentially absent, within which genetic alterations, which still randomly occur, in no way change the functional relationship of the species to its environment. 

Those driven into the margins, however, are not optimized to their new environment, either behaviorally, or physically. And because they are suboptimal, and suboptimal possibly to a variety of different optima, both physically and behaviorally, they may have choices.  Their new environment may present them with a selection of possible niches for them to move into, for them to both adapt to and mould to their behavior. (Every time a species successfully colonizes a new environment, it alters that environment, and thus the structure and relationships of the niches occupied by the other species already occupying that environment. and of course the species themselves.)

 First they must alter their behavior so that with their imperfectly adapted bodies they may best cope with their new reality. If they succeed and survive, and have issue, they pass these behaviors on to their descendants.  Physically, the descendants slowly evolve, as the shape of the new environment potentiates net forces upon them.   These provide relative advantage to the random mutations which create the altered structures that improve the ability of the species to cope and prosper, and relative disadvantage to those which do not.  (Note the earliest generations have the greatest opportunity to change behavior, and adopt to different niches.  Indeed, a random physical adaptation which is inappropriate to the behavior adopted by the parent may lead the descendant to alter its behavior, and thus branch into an alternate niche. This suggests that branchings, rather than predominately binary, would tend to be clustered about points of colonization, when the differing  opportunities reachable to the species are greatest in availability, number, and variety.)

The forces imposed upon the colonizing species would be of two basic types, push and pull, pressures and opportunities.  Singly, these would respectively tend to be dispersive and attractive.  However combinations of opportunities could be dispersive, and arrays of sources of pressures compressive.  As a result of these environmental forces, different combinations of vectors of radiation may result.

There is also the possibility that colonization happens into an environment where no particular niche offers sufficient opportunity for the new species to survive. No singular alteration of behaviors would enable survival, but a combination of  two or more groups of new techniques must be adopted if the species is, say, to acquire enough food to survive. The species may eventually come to physically adapt to one or another niche and specialize. It then may come to exploit that niche with sufficient efficiency to survive. Due to environmental forces, this may involve acquiring physical strength, over subsequent generations, and the weak become strong. 

However, it may also be that specialization is not possible, and the individual of the species must continue to exploit several niches in order to survive. Since physical adaptation to one niche will likely compromise its ability to exploit other niches, increase in the ability to exploit its environment might then be primarily a result of an increase in the varieties of behavior.  Behavioral adaptation, especially where an increase in the variety of behaviors is required, puts a premium on intelligence.  Of course, even the simplest act of colonization requires more intelligence than is needed by an optimally adapted species in its home environment.    

In the adaptation to its environment, a species acquires those qualities it needs, but in more than the quantities it needs.  The ability to meet the bare minimum of demands of the environment will not be sufficient.  Survival requires more than efficiency: In the distribution of coping abilities in its environment, the abilities of individuals in all but the lower tail of that distribution must exceed the demands of the environment.  This necessarily includes intelligence.