Creative Class

Tim Hartford directs us to this intriguing essay by Michael Munger on the theory of the firm.

So, one day the boss has this crazy thought. He asks himself a question
that has never occurred to him before: Why have any employees at all?
Why have a building? Why not just sit home, wearing his jammies and
bunny slippers, sipping a nice cup of tea, and outsource everything? He
can write contracts to buy parts, he can pay workers to assemble the
parts, and he can use shipping companies to box and transport the
product.

Sounds like a few people I know, actually. (You know who you are …).

“Toxic Hollywood” (Steve Weber at Huffington Post). Money quote:

The drug is Fame. While it is never fully acknowledged as having any ill effects, the
hunger for Fame has reached epidemic levels and has replaced art,
education, politics, medicine and civil service as an acceptable career
objective for today’s youth. Because once under its spell, the pursuit
of Fame can become an obsession on the order of chasing the dragon,
making one all too willing to sacrifice anything in order to obtain its
fleeting and instantly addictive high. More intoxicating than nicotine,
cocaine, heroin and alcohol and virtually inseparable from Power
(making it the ultimate aphrodisiac by any other name), Fame has been
the elusive phantom nudging the vulnerable headlong from common sense
into utter insensibility. Fame can warp the perception of the person
swept up in the eye of the vortex, and its whirling force impacts even
those loitering at its edges. It bends the air and light, a cracked
prism through which reality is projected onto our screens and into our
lives.

Question: Why the quest for fame now?  Might its rise be linked to dramatic shift in the nature of our economy and especially its impact on the USA and the West?

Not me. It’s what Bill Gates is advocating at Davos (via Mark Thoma). Yowser!

In Heathrow Airport waiting for my connection to Valencia, I came across the new issue of Time. It’s their Davos issue.  The cover is devoted to what they consider to be one of the (ignored)  bright-spots of the global economy – the rise of the global city-states of Ny-Lon-Kong.  Here’s a snippet.

Go back nearly 30 years, and few would have thought that any of the
three cities were about to remake the world for the better. In
September of 1982, the Hong Kong stock exchange lost a quarter of its
value … At the same time, London and New York City were
bywords of urban decay …  Yet
even in the darkest times, the Nylonkong cities had the sort of hidden
strengths that would be their salvation. All had a certain adaptability
hardwired into their people. All were once centers of manufacturing,
but all have been able to shift their economic focus to the service
sector … All are — or have been — great ports … It has made them open
to trade, with all the transformative capacity that trade has to shake
up established orders and make the exotic familiar.

Their history as ports has made Nylonkong open to the world in other
ways, too … The network of international trading and personal contacts that
shape New York, London and Hong Kong facilitate their key industry. If
the 19th century was the age of empire and the 20th one of war, so the
21st century, to date, is an age of finance …

Great cities, of course, are about more than money and finance. They
are messy agglomerations of talent and culture. That is how they
attract men and women in the financial sector who could choose to live
anywhere … That’s a reason
why Nylonkong needs to be careful not to kill the goose that laid its
golden egg. These places are not cheap. According to the consultancy
ECA International, Hong Kong’s high-end apartments last year had the
most expensive rents in the world, with New York third and London
sixth.

The sheer expense of living in Nylonkong is but one of the
challenges facing it — as the next three stories demonstrate. In the
case of New York, high real estate prices may squeeze out of town the
very people that make a city fun and livable. Globalization may have
brought many benefits to those who live in London, New York and Hong
Kong, but it has at the same time made the familiar strange, and turned
the known world upside down.

More here.

If the title of this post seems cryptic, it’s probably because I’m a wee bit
jet lagged at the moment. That and the fact that I used the ride to catch
up on some reading – going through several issues of Business Week, The Economist, New Yorker, and the like.

But, I’m struck not just by at how much is being written about the
so-called  end of American Empire and but by the matter-of-factness of
the conversation. There’s very little hemming and hawing, little
hand-wringing.  Really no sense of frustration or despair. Little of
the “what do we have to do to get it back” get-up-and-go kind of
feeling.  And it is almost completely absent from the election debates,
accept in a very veiled way.

As an American who has long worked
on competitiveness, this strikes me as odd. Compare, for example, to
the outpouring of books, articles, opeds, media coverage and what not
given to America’s competitiveness crisis of the 1980s – the rise of
Japanese and German competition in manufacturing. Sure, there is
discussion of the rise of China and India as new competitors, but
precious little of the sort of fuming and getting-to-it we’ve seen
previously.

Why might this be so? What’s different now than
before?  Is America – and the media – in a state of denial?  When an
empire starts to decline does it go out with a bang or just a whimper?

Katrin Bennhold of the International Herald Tribune reflects on the rapidly morphing zeitgeist at Davos (h/t: Alison Kemper):

Is economic history about to change course? Among the chieftains of
politics and industry gathering in Davos for the World Economic Forum
on Wednesday, a consensus appears to be building that the capitalist
system is in for one of those rare and tempestuous mutations that give
rise to a new set of economic policies …

One such mutation in mainstream economic policy took place after the
Depression of 1929, which led to a protectionist interlude and then
gave rise to Keynesian demand-side policies and eventually the welfare
state. Another took place following the oil price shocks in the 1970s,
which refocused policy makers’ attention to supply-side measures and
strengthened those pushing for privatization and free markets as the
best way to stimulate growth …

A year and a half ago, researchers at Yergin’s group drew up a number
of scenarios for the world economy in 2030. One of them, “Asian
Phoenix,” saw a world in which protectionism was kept at bay and Asian
economies kept underpinning swift global growth. The other, “Global
Fissure,” was a troubled world economy with widespread economic
nationalism and a backlash against globalization. At the time, the latter scenario seemed to be the more remote. But
that may be changing, Yergin said. “What seemed highly unlikely,” he
said, “could become rather more likely.”

Navigating such a transformative period requires serious leadership. It’s more than a year until the next president takes office.  Do folks believe that America’s political leadership can play an effective role in the interim, or that even when a new President takes office he or she can build enough consensus in the country and in the Congress to provide it. And if not, where can such leadership come from?

The dailies and the blogosphere sense a bigger financial and economic debacle is in the offing.

George Soros says its the worst market crisis of the past sixty years – the end of a long super-boom (Kontradieff rears his head).

The usually up-beat David Leonhart asks: How bad could this get?

Martin Wolf says we have come to grips the big fat elephant in the room and that the end result will be a reshuffling of global politico-economic power away from the US and the west and toward China and the emerging economies.

Curious Capitalist, Justin Fox says the explosion of US household debt is what’s behind the implosion

Felix Salmon says Bernake’s rate cut is a “desperate” move and that the mood opening the big Davos shindig is super-bearishly negative.

Dan Gross headlines, “Panic and Davos!”

I’m typically able to look beyond the negative, but this sounds like a chorus of Stephen Roach’s and Jim Kuntsler’s. And while I  believe that the economy of creativity and ideas will ultimately prevail, the short-run looks pretty, pretty rocky.

UPDATE: Tyler Cowen finds some things to cheer us up.

But Clive Crook is worried and directs us to London School of Economics, William Buiter who writes:

It is bad news when the markets panic.  It is worse news when one of
the world’s key monetary policy making institutions panics.  …

This extraordinary action was excessive and smells of fear.  It is
the clearest example of monetary policy panic football I have witnessed
in more than thirty years as a professional economist.  Because the
action is so disproportionate, it is likely to further unsettle
markets.

The New York Times has apparently just discovered that it’s becoming really expensive for bands to find practice space there (h/t: Ken McGuffin).

Rehearsing can be tedious and time-consuming, and in New York City,
musicians say it is more expensive than ever. Steadily rising real estate prices are taking a toll on all but the best-financed music groups and institutions. Small bands and ensembles feel the
pinch when they book practice time in rehearsal studios … In other cities, some groups in the hunt for affordable rehearsal space might begin as “garage bands.” But few people in New York City have their own garages, and musicians say that finding an affordable place to practice is as much of a challenge for performers who make a living in music as it is for part-timers and
amateurs.

The musical energy moved to Williamsburg and Hoboken ages ago, soon (I hope) it will infest more of northern New Jersey and ultimately Philadelphia, Baltimore, and DC (which all have generated more robust scenes).  Our ongoing research suggests that the music industry is biurificating into commercial clusters like NY, LA and Nashville and creative clusters in places from Austin, Portland and Omaha;  Toronto, Vancouver and Montreal;  and others in even smaller places in  North America and around the world. For a variety of reasons, not just technology, music is being reshaped around the push and pull of the forces of dispersal and concentration.  Some older locations are losing their allure, and new ones are rising as centers of musical concentration, clustering and creativity.  It’s in line with the increasing specialization and sorting or people and economic functions. But if I were Mike Bloomberg, I’d keep an eye on this, sort of as a leading indicator. Like Jane Jacobs said, “when a place gets boring even the rich people leave.”   And a city without new sound can be a very boring place indeed.

Columbia University’s Andrew Gelman has been pouring over data trying to get at the driving forces at work in American politics. He’s finding evidence of increased polarization in the politics of the wealthy.

In poor states such as Mississippi, rich people are much more Republican than
poor people; in rich states such as Connecticut, rich people are only slightly
more Republican than the poor. .. the gap in voting between rich and poor voters has increased,
but especially in the poor states: … Thus, the familiar “red America, blue America” pattern, the “culture war” between red and blue states, is really something happening at the higher range
of incomes.

This strikes me as a pretty big deal. It makes intuitive sense to me and is in line with the work of Ronald Inglehart on post-materialst politics. It suggests our politics no longer revolves around the simplistic capital-labor schism of the industrial age, but reflects the rise of the creative economy and of its new and evolving class and occupational structure. This shift also underpins the rise of independents, dissatisfaction with partisan labels among younger and more educated segments of the population, and the Obama phenomenon.

This kind of schism within the rich (dare I call them the capitalist class) – with states like California, New York and Massachusetts being more likely to identify as Democrat, and  Mississippi and other energy belt states more likely to identity as Republican – also suggests increased political competition between the royalty and rent economies.

My reading is that the underlying divides in the United States have real roots in class and economic structure, as well as their more typically discussed cultural and ideological overlays. Such economic divides have appeared before – in  the period leading up to the Civil War, during the late 19th century and certainly during the Great Depression as Tom Ferguson and others have chronicled.  In any case, findings like Gelman’s suggest that the divides in America run very deep and are linked to an ongoing, internal battle between two increasingly distinct American economies fueled by a tectonic shift at the cutting-edge of global capitalism from making things to generating ideas.

In his new book, Comeback Conservatism, David Frum writes (pointer via Crooked Timber):

Where you find many different lifestyles and races; where you find
singles, immigrants, and gays; where you find high-rise buildings,
country estates, and really great take-out – there you find inequality.
After all, what is inequality but another form of “diversity”? And what
is “equality” but another word for homogeneity? Communities with lots
of married families, lots of single-family homes, and low proportions
of nonwhite minorities and single people – communities that Democrats
and liberals would inwardly disparage as “white bread” – are communities in which people tend to earn similar amounts of money. (p. 37)

Discuss.