What's at stake for the leisure class?

A fascinating and disturbing piece in the New York Times yesterday describes the increasing differentiation of product offerings across a money-based caste system.

With disparities in wealth greater than at any time since the Gilded Age, the gap is widening between the highly affluent — who find themselves behind the velvet ropes of today’s economy — and everyone else.

It represents a degree of economic and social stratification unseen in America since the days of Teddy Roosevelt, J. P. Morgan and the rigidly separated classes on the Titanic a century ago.

What is different today, though, is that companies have become much more adept at identifying their top customers and knowing which psychological buttons to push. The goal is to create extravagance and exclusivity for the select few, even if it stirs up resentment elsewhere. In fact, research has shown, a little envy can be good for the bottom line.

Hey, this is just smart marketing, right? Maybe. In reality, your callow undergraduate classmate is getting a marketing degree or hotel management for this:

“We are living much more cloistered lives in terms of class,” said Thomas Sander, who directs a project on civic engagement at the Kennedy School at Harvard. “We are doing a much worse job of living out the egalitarian dream that has been our hallmark.”

When the egalitarian dream seems like a fantasy, it's ok to ask, "what did these rich folk ever do for me to deserve getting Disneyland all to themselves?" Fair question, and one that should worry the top caste of our new money-based caste system much more than it does.

But let's ask (and try to answer) the cultural dynamic question first. To understand why this kind of marketing works for the wealthy, you have to understand what's at stake for them. Sure, they're extremely economically comfortable. They will be able to afford good schools for their children, probably allow them to avoid student debt, save more than enough for retirement, fully own their own home (perhaps more than one), buy a car for everyone, give their kids a wide range of experiences around the world, hire plenty help to allow them to pursue other productive activities, and unless they are extremely stupid with their finances (or unless the economy collapses around them due to their negligence) they should never have to face economic catastrophe. But why would they avoid contact with the lower castes?

The stakes for them aren't "economic catastrophe" the way the rest of us define it. Instead, the stakes are social catastrophe, as Thorsten Veblen described it in his Theory of the Leisure Class. Spending money to be in the company of fellow high-spenders signifies to everyone that you belong there, and that you're important enough to have a place at the table. And when you're important, your servants should already know what you want. According to the Times, this is the tricky part of marketing to the moneyed:

For companies trying to entice moneyed customers, that means identifying and anticipating what they want. “The premium customer doesn’t want to be asked questions,” said Mr. Clarke of PricewaterhouseCoopers. “They don’t want friction. They want things to happen through osmosis.”

This gives the right hint to the primary reason that people desire to accumulate excess wealth, as well as the reason it's so scary for them to think about losing it: their money allows them to do a great deal with a very small amount of personal effort.

Even though this kind of pampering might be good for business, and delight those on the right side of the velvet rope, the gap between the privileged and the rest may ultimately leave everyone feeling uneasy, said Barry J. Nalebuff, a professor of management at Yale. “If I’m in the back of the plane, I want to hiss at the people in first class,” said Mr. Nalebuff, who has advised many Fortune 100 companies. “If I’m up front, I cringe as people walk by.”

Deep inside, we all understand that there's something hard to justify about a money-based caste system. As a civilization, facing a low-GDP-growth future, we're only just getting good at talking about it openly.

I hate this map

This is the kind of map that looks like it should be telling you something, but in reality -- as philosophers like to say -- it does little useful work. It suggests absolutes based on the patterns that the author has chosen to include, but I guarantee you that any predictions implied by the map are more likely to be wrong than right.

Here are some examples of how it comes across as incomplete: 

• Within any one of these regions, city and non-city residents are culturally comparable?
• People living in LA are just like people who live in El Paso?
• The difference between the SF Bay Area and the LA Basis is bigger than the difference between panhandle Texas and northern Delaware?
• Someone from Saskatchewan is just like someone from southern Utah?
• The descendants of Germans in central Texas are just like the descendants of Scottish immigrants in eastern Kentucky?
• New Orleans and Montreal are really in the same bucket? Is there no accounting for the nearly infinitely deeper history of slavery in the Mississippi Delta versus in New France?
• On that note, African American culture and migration patterns fit in ... how?

I'll say this as well: the middle of the map looks really complex and gerrymander-ish. I'm guessing It was a struggle to pull it together. I would bet that the underlying patterns used to generate the map are really messy here.

Is this map better than "red states" and "blue states"? Or better than the "coasts" and the "flyover states"? Yeah, I guess so. But only if you're playing the odds on the outcomes of elections. Otherwise, if you're trying to actually understand the cultural stakes against which any one person makes their everyday decisions, this map and others like it are useless.

Climate change and the (near total) inflexibility of global culture

Yesterday the New York Times published a (very dark) op-ed by Bill Gail that speaks very clearly to many of themes discussed on this blog. He makes the point that the "accumulated wisdom" of humanity (which I would call ... wait for it ... "culture") will soon become outdated, as weather patterns, ocean currents, the timing of seasonal events, changes in precipitation, extreme weather, and many other changes will begin to swamp our ability to absorb them in a tidy fashion.

The idea that we simply won't be able to manage what's coming will become a more common theme as time goes by. In many parts of the world, we will being to transition from a "cultural selection" regime (where cultural solutions can be developed faster than cultural problems arise) to a "natural selection" regime (where cultural solutions can't be developed fast enough). The latter is a bloody, horrible affair that we should be working very hard to avoid. Unfortunately, we are already beginning to see the signs of it. The Syrian/Iraqi refugee crisis has already strained the goodwill of neighboring countries in Europe and the Middle East to almost beyond the breaking point. Similar conflicts can be expected to arise elsewhere as political tensions, driven almost entirely by economic disenfranchisement of large sectors of the population, make living where you were born untenable.

The problem is that there is nowhere else to go. Every part of the world (whether economically well off or not) is occupied by people who already feel the economic noose tightening around their necks. If enforced birth-rate limitation policies (e.g., no more than 2 children per couple) are off the table, then there are only two ways out (in the short- and long term):

• Sustainably grow the global economy to accommodate the growing demand for resources (which is unlikely since we've already pulled the "globalization" trigger ... and globalization is unlikely to yield any further high-growth dividends)
• Uniformly loosen the economic noose for everyone by reducing income inequality (very hard, since the natural tendency of the wealthy in times of scarcity is to hoard wealth).

The problem is that neither of these solutions is any way reflected to how we live now. As Bill Gail would say, they are totally at odds with humanity's "accumulated wisdom." The first asks us to radically change how we all live, and the second asks the wealthy to think about how their actions (and the rigged financial system that supports them) can be sustained when global demand for the goods and services that keep them afloat plummets to dangerously low levels.

But an even more diabolical roadblock is that humanity's experiences and problems are not uniformly distributed. We will not all experience climate change in the same way, and we can expect that while many might be highly motivated to pursue aggressive policies to soften the blow of climate change, there will continue to see aggressive action as seriously hassling their vibe. Without a uniform perception of what is at stake, our "accumulated wisdom" will truly mean exactly squat.

The risk of human cultural catastrophe is like a stock-out in a company's inventory

Modern warehouse with pallet rack storage system (Wikipedia) -- depending on customer demand volatility and supply chain reliability, huge amounts of inventory can be kept to optimize customer delivery and cash flow.

There's always a certain amount of noise in everything. Daily and hourly financial news is noise. It's up one day but will be down the next. It's down in the morning? Don't worry, it'll probably be up by the afternoon. Like Mark Twain (probably) said, "If you don't like the weather in New England now, just wait a few minutes."

To properly interpret financial markets, we must take a slightly longer view, one that includes at least a week of data, and probably much more. If we do that, we can talk statistically, and calculate three numbers: (1) the current market value, (2) the trend in market value over time, and (3) the volatility in market value. The first two numbers make intuitive sense. The mind can quickly see how they would be used to make predictions, e.g., if the market is currently valued at 1,000, and is increasing in value at 5 per business day, then in 15 business days you would predict that the market would be valued at around 1,075. You can even assign statistical certainties to these predictions based on how much data you have, and whether you have other known mechanisms that you can rely on to constrain your predictions.

The third number, volatility, is just as important. I'll simplify it a bit, and say that volatility tells you how much the market is likely to "randomly" change in a single day. It is a measure of the noise, up or down. If volatility is high enough, then random daily changes could exceed the daily trend; they could even be large compared to market's overall value. When this happens we say that the market is unstable, implying low confidence in the market and the possibility of a crash.

If you're running a business that ships physical inventory, you have to keep similar concepts in mind. Supply chain managers do their best to predict demand from customers. But customer demand can be highly volatile, especially if the product is a once-in-a-while purchase. And supply of the product can be highly volatile, as well, if the raw materials are scarce, or if competitors are able to command a dominating share of the raw material market.

If a company keeps a lot of inventory to accommodate this kind of volatility in their supply chain, then they're tying up cash and risking that the inventoried product will never be purchased at all. If the company keeps too little inventory, then it runs the risk of a stock-out, forcing customers to wait through a backorder and possibly losing them to the competition. The safe way is to keep inventories high or make deals with their suppliers (if they have the bargaining power, like Walmart or Amazon) is to pad their inventory and quickly deliver to customers. But not everyone can do that. It's a tough balancing act, and the best supply chain managers do all they can across their entire product line to keep their suppliers and customers happy, and keep the product moving when needed.

A very similar volatility problem is faced by human populations in terms of their wealth. When all is peaceful and right with the world, volatility in wealth is low compared to the total amount of wealth that has accumulated in the population. Under these circumstances, most people are unlikely to experience significant daily or even yearly changes in their wealth, and catastrophic changes (much like an inventory "stock-out") are extremely unlikely.

However, unless you're really, really lucky, life doesn't work like this. There's always a certain amount of wealth volatility associated with just being alive and heading out the door. Wealth volatility can take the form of unforeseen costly events, like a medical emergencies, being hit by a car, a mass layoff in a company town, being robbed at gunpoint, living with domestic or spousal abuse, being born with a disability or suddenly caring from someone with a disability, a car breakdown, or setting your alarm to PM instead of AM or being stuck in traffic right before an important job interview.

To be fair, some events can be unforeseen and positive, like getting a better job, winning the "startup company lottery" (and typically thinking that you did because of your superior virtue or the virtue of your company's value proposition), being born to rich parents, or meeting the love of your life.

But the point here is that there is always some baseline level of volatility. I've talked in previous post about how people go out of their way to avoid catastrophic loss. Kahnemann and Tversky's concept of loss aversion is really important here. When an individual is already running low on wealth, the baseline level of volatility that everyone lives with looks like a much bigger deal than when wealth is running high. Those who live comfortably often fail to understand this, conveniently assigning "ill-virtue" to the mishaps that bring catastrophe to the poor, and "good virtue" to the many serendipities without which the relatively luxurious lives of the comfortable would be impossible. What they don't realize is that the probability of catastrophic loss is very high when wealth is low, no matter how virtuous you are. They also tend not to understand that a catastrophic loss to individuals is costly to everyone.

If human lives were like a company's inventory, we would all try to save as much as possible to keep a buffer against negative, unforeseen events, or we would put systems in place to provide robust safety nets to individually protect everyone from catastrophic loss. But if forces beyond our control eat through our buffer or erode the safety nets, then we run a strong risk of being left helpless, powerless, and unproductive (at a cost to everyone).

The fear of risking that kind of catastrophe is a powerful force. And it's hard-wired into our psychology as culturally evolving beings. As I wrote in the last post, human populations can live in one of two different regimes, (1) the cultural selection regime, which we fight to maintain, but is only possible when the cultural solutions (i.e., resources and know-how) are available to overcome the vicissitudes of our environment, and (2) the genetic selection regime (or "tribal" regime), which is the bloody, awful consequence of volatility causing our individual and collective wealth to peg at zero. I've outlined it in the following figure:

How volatility in wealth can lead to catastrophe (a "stock-out") when average wealth is low.

As humans we can sense where we are on this curve, and we respond to our proximity to catastrophe accordingly, clawing to keep what we already have. If we open up the idea of "wealth" to include more than just money and property, the concept can be applied to many things. For instance, it is widely assumed that Trump supporters are at least as motivated by a desire to restore the racial hierarchy upended by Obama's presidency as they are by anything else. Why? Because being white in America, even if poor, has throughout our history implied power. Losing that power brings unknown consequences, since "power" and "wealth" are really just ways of saying that you can get more with comparatively less work. True, for some the consequences of losing the wealth of "whiteness" could be individually catastrophic. At the very least, those who have enjoyed the advantages of being at least white in America might have to adopt different styles of conduct and learn to respect those who are not white ... habits that don't come naturally after generations of cultural entrenchment.

At the same time, the GOP establishment is deadly afraid of Trump supporters, because it sees them as interested in goals that are at cross purposes to their own. Trump's supporters -- overwhelmingly white and lower and middle-income -- are desperate to stop and hopefully reverse the economic disintegration they have seen in their communities. Sure, they blame the wrong culprits when they should be blaming people like Trump, but they also make it very hard to make something like, say, tort reform and important plank in the Republican party's platform. So the establishment fears the loss of the base they have relied on -- and consistently betrayed -- for so long.

A final note: I'm not a Trump supporter, and I despise Trump himself, but it's worth keeping in mind that when people see a threat to their "wealth" -- however you want to define it -- they will do whatever they can to avoid a "stock-out." The only way to fix the problem of Trump's support is to remove the risk of the stock-out. So I was amused recently to read a number of articles saying that the GOP needs to lose big in order to reform itself, blah, blah, blah. What none of these articles takes into account is the fact that they will still face the threat of the stock-out, that they will continue to behave according the mental models of how the world works that can be seen on loud display at Trump rallies, that they are heavily armed, and they have no natural leadership other than people like Trump. The destruction of the GOP as we know it won't change any of that.

The bulk of human evolution is now through culture (let's keep it that way)

Humans stopped genetically evolving some time ago, and now evolve almost exclusively through cultural change. The simple reason is that cultural change allows human populations to generate solutions to the problems they face at least as fast as the problems emerge and much faster than their own generation time (that is, well within the time between the births of successive generations).

In a previous post, I introduced two time scales, T and \(\tau \). The first time scale is T, the generation time, or the time between the births of successive generations. It's also the time scale of natural selection, or the smallest approximate period of time over which genetic changes can sweep through a population. The second time scale I introduced is \(\tau \), or the time scale of culturally effective change. This is the time it takes for an cultural change to sweep through a population and effectively solve a cultural problem. In general, \(\tau \) has the potential to be much smaller than T, but it can also be much larger if there is a significant risk of loss associated with the cultural change. In general, \(\tau \) is smaller than T in those time when adopting a cultural change will confer an immediate advantage with comparably few and minor near-term disadvantages, or when failing to adopt the change would be catastrophic (i.e., deadly), while \(\tau \) is likely to be larger than T in those times when adopting a cultural change would lead to large near-term risks of loss.

Now I would like to introduce a third time scale, E, which is the time it takes for an environmental change (of any kind, including those that you might otherwise attribute to internal conflict) to adversely if not catastrophically affect a population.

Let's say that the environmental change we're talking about is a multi-decadal cold snap, meaning that the climate of a region changes over 5 years (E = 5 yrs) such that temperature, on average, is 5deg C colder than before for decades at a time, with dangerously cold winters. Let's also assume that, overall, the population is not prepared to survive this change (i.e., their culture does not have a solution to the multi-decadal cold snap problem). Let's further assume that some individuals within the population are genetically predisposed to carrying around a lot of extra "blubber". We'll call these individuals sub-population A, while the rest of the population (the skinny ones) we'll call sub-population B. The extra fat carried around by the A's confers a distinct advantage during the dangerously cold winters. Not only are A's more likely to survive the winters, but they are more likely to be able to do excess work, beyond simply staying alive, enabling them to build up a surplus in resources that allows them to successfully raise more offspring (who, one would assume, are genetically more likely than not to be A's themselves).

B's, on the other hand, have it tough. They either migrate away to warmer climates (assuming they know how) or they live out a meager existence, either dying from the cold, or being so beset by frigid temperatures that they never manage to successfully raise any offspring. The end result of the differential in reproductive success between the A's and B's leads to the dominance of the A's and the change in the nature of the population from one that looks like a mix between A's and B's, to one that mostly just looks like the A's. The time scale of this change via natural selection is the generation length, or T.

An cross-sectional example of an Inuit shelter.

If the percentage of the population comprised of A's is small, or if the advantage conferred during the winter months by being an A is small, then the implications of the cold snap could be very, very grim, indeed. Most if not all of the population would likely die off, leaving other human populations elsewhere to carry the torch for the species. But the B's (and the A's) have a third option; they don't simply have to leave or die. They can also find and adopt cultural solutions to the cold snap. Rob Boyd and his colleagues Peter Richerson and Joseph Henrich (2011, PNAS, 108:10918-10925, open-access article) outline the intensely complex cultural solutions adopted by the Central Inuit in polar North America in response to deep cold, including very well-tailored clothing, cunning shelters, ample sources of heat, inventoried food, and a wide-variety of seasonally appropriate hunting tools, among others.

None of these solutions sprang up overnight, but you can imagine the ancestral populations of the Inuit incrementally adopting these kinds of cultural solutions as the climate cooled, or they migrated pole-ward. Therefore, in the moment, \(\tau \) would always be less than or equal to E, and always less than T, keeping the population from having to undergo a bloody round of strong natural selection. As they were adopted, these cultural solutions would confer advantages to both A's and B's, while the A's would have the additional advantage of their "spare tires", and it would no longer be a foregone conclusion that the B's would entirely die out or move away. In fact, keeping the B's around could be useful during the summer months. Bottom line: cultural solutions allow a population to persist, without the need for deep change in its underlying genetics.

So, if \(\tau \) is smaller than T and and no greater than E, then populations will evolve by cultural means, not genetic means (the "cultural selection regime"). If, on the other hand, \(\tau \) is incapable of being less than T, and is larger than E, then populations will evolve by genetic means (the "natural selection regime"), subject to Tennyson's "nature, red in tooth and claw." Cultural evolution helps to avoid or soften these very hard times by introducing population-level innovations that are not reflected in the gene pool of the population, which can take effect much faster than the time it takes for favorable A-related genes to sweep through a population.

This has real meaning for us today. We are facing grave cultural problems: nuclear proliferation, global climate change, mass migrations, water shortages, lack of clean water, broken politics, massive income inequality, and many others. Genetic evolution can't help us here. In fact, all of our broader cultural efforts (humanitarian aide, relief efforts, nuclear non-proliferation treaties, agricultural reform, environmental protection, etc.) are in service of avoiding natural selection, and keeping us in the "cultural selection regime." But it is our inability to quickly find cultural solutions to these problems that should worry us. If we can't find them, and \(\tau \) creeps higher and higher, while E gets smaller and smaller, then expect humans to enter a very dark time in our history, where population change occurs by genetic rather than cultural means.