Who Owns the Future? (8 page)

And there are bugs! We just went through taxpayer-funded bailouts of networked finance in much of the world, and no amount of austerity seems enough to fully pay for that. So the technology needs to be tweaked. Wanting to tweak a technology shows a commitment to it, not a rejection of it.

So, let us continue with the project at hand, which is to see if network technology can make capitalism better instead of worse.
Please don’t pretend there’s some “pure” form of capitalism we should be faithful to. There isn’t.

Income Is Different from Wealth

During the mortgage craze of the baby years of the 21st century, there was a popular book called
Rich Dad, Poor Dad.
The author explained that his real dad, an academic, earned a reasonable salary, but he never seemed to get ahead. His mentor, the “rich dad,” made investments instead of thinking only in terms of earning. So millions of people chased after this magical thing enjoyed by the rich, not mere income but
wealth
. (Unfortunately, it turned out that buying a home, one of the principal strategies of that movement, summarily turned into an invitation to be scammed.)

Very few rich people are strictly big earners. There are a few in sports or entertainment, but they are freakish anomalies, economically speaking. Rich people typically earn money from capital. They have invested in real estate, stocks, or more rarefied opportunities, and money sloughs out of those positions. The rich have internalized a psychology of finance, as opposed to accounting. Another way to put it: The rich enjoy big levees in the flow.

Levees grow naturally and gracefully at the upper extremes of wealth. Wealth for the most successful people becomes like the ocean that rivers empty into after a great storm of commercial transformation.
*
It is easier to stay rich than to get rich.

*
Apologies for inconsistencies in the topography of my images. In this case, the rich are placed at the lowest hydrological elevation, collecting fluid not trapped in levees, while elsewhere they are placed at the top, which corresponds better to our usual images and terminology. In mathematics we often switch around top and bottom to visualize ideas that become more intuitive one way or the other. We are constantly trying to find ways that our minds can make sense of abstractions, and that’s hard enough that I am willing to cede consistency.

The still-missing piece of the puzzle of capitalism is how to create a less ad hoc, more organic, middle-class-sustaining form of wealth, as opposed to mere income.

The ideal mechanism would be fluid enough to reward creativity,
and not turn into a moribund power base for committees. The design ought to nonetheless be tough enough to withstand inevitable giant hurricanes of capital flow, which will surely appear as new technologies unfold in this century. It ought to be graceful and ordinary, and not dependent on all-or-nothing life events, like getting into a union. A robust solution would be “scalable,” meaning that it will be strengthened, not weakened, as more and more people embrace it.

A proposal for such a design appears later in this book.

The Taste of Politics

The beneficiaries of middle-class-sustaining levees have been subject to assault from two directions. From above, the rich, who had been elevated by the upward drafts of capital flow, sometimes look down and see an artificial blockage in their flow. A union, for instance, might prevent an employer from choosing an employee who would work for less and demand less security or safety. What might seem to a worker like security can seem to an employer or an investor like a blockade on the corrective mechanisms of the market.

From below, those who do not enjoy a particular sort of levee of their own might resent the levees of others. This is the case when people who don’t benefit from levees like copyright royalties, union membership, or academic tenure assault the legitimacy of what seem to be contrived benefits enjoyed by others, or even more annoyingly, what seem like barriers to their own flow.

One example came up for me in the 1980s, when I mounted strange musical performances using early Virtual Reality equipment onstage.

In the strongest union towns it was almost impossible to perform. In places like Chicago, I would be forbidden from plugging equipment together onstage. That was a job for a union member, except no union member had ever dealt with shape-sensing optical fiber bundles or wiring for magnetic field generators that were needed to track parts of performers’ bodies. So we would hit an impasse. It was absurd. Furthermore, the union people were sometimes kind
of scary. Theirs wasn’t just an intellectual argument; the threat of physical enforcement hung in the air. When we finally worked out a way to stage an experimental performance, it involved paying various people rather well to just sit there, and paying others to confirm they were sitting there.

So the union seemed at that moment to stand in the way of both personal expression and technological progress. And yet, I appreciate how unions came to be and how important they have been.

Next to every levee is a battle trench. The fight to establish unions was deadly, at times approaching a form of war. Generations of labor activists took great risks and suffered so that weekends, retirement, and general calm and security could become imaginable for ordinary people. The labor movement has never been perfect, but I respect it and am grateful for the improvements it has brought to our world.

Despite my favorable regard for organized labor, for the purposes of this book I have to focus somewhat on certain failings. The problems of interest to me are not really with the labor movement, but with the nature of levees. What might be called “upper-class levees,” like exclusive investment funds, have been known to blur into Ponzi schemes or other criminal enterprises, and the same pattern exists for levees at all levels.

Levees are more human than algorithmic, and that is not an entirely good thing. Whether for the rich or the middle class, levees are inevitably a little conspiratorial, and conspiracy naturally attracts corruption. Criminals easily exploited certain classic middle-class levees; the mob famously infiltrated unions and repurposed music royalties as a money-laundering scheme.

Levees are a rejection of unbridled algorithm and an insertion of human will into the flow of capital. Inevitably, human oversight brings with it all the flaws of humans. And yet despite their rough and troubled nature, antenimbosian levees worked well enough to preserve middle classes despite the floods, storms, twisters, and droughts of a world contoured by finance. Without our system of levees, rising like a glimmering bell-curved mountain of rice paddies, capitalism would probably have decayed into Marx’s “attractor nightmare” in which markets decay into plutocracy.

Drove My Chevy to the Levee but the Levee Was Dry

The levees weathered all manner of storms over many decades. Before the networking of everything, there was a balance of powers between levees and capital, between labor and management. The legitimizing of the levees of the middle classes reinforced the legitimacy of the levees of the rich. A symmetrical social contract between nonequals made modernity possible.

However, the storms of capital became super-energized when computers got cheap enough to network finance in the last two decades of the 20th century. That story will be told shortly. For now it’s enough to say that with Enron, Long-Term Capital Management, and their descendants in the new century, the fluid of capital became a superfluid. Just as with the real climate, the financial climate was amplified by modern technology, and extremes became more extreme.

Finally the middle-class levees were breached. One by one, they fell under the surging pressures of superflows of information and capital. Musicians lost many of the practical benefits of protections like copyrights and mechanicals. Unions were unable to stop manufacturing jobs from moving about the world as fast as the tides of capital would carry them. Mortgages were overleveraged, value was leached out of savings, and governments were forced into austerity.

The old adversaries of levees were gratified. The Wall Street mogul and the young Pirate Party voter sang the same song. All must be made fluid. Even victims often cheered at the misfortunes of people who were similar to them.

Because so many people, from above and below, never liked levees anyway, there was a triumphalist cheer whenever a levee was breached. We cheered when musicians were freed from the old system so that now they could earn their livings from gig to gig. To this day we still dance on the grave of the music industry and speak of “unshackling musicians from labels.”
¹
We cheered when public worker unions were weakened by austerity so that taxpayers were no longer responsible for the retirements of strangers.

Homeowners were no longer the primary players in the fates of their own mortgages, now that any investment could be unendingly leveraged from above. The cheer in that case went something like this: Isn’t it great that people are taking responsibility for the fact that life isn’t fair?

Newly uninterrupted currents disrupted the shimmering mountain of middle-class levees. The great oceans of capital started to form themselves into a steep, tall, winner-take-all, razor-thin tower and an emaciated long tail.

How Is Music like a Mortgage?

The principal way a powerful, unfortunately designed digital network flattens levees is by enabling data copying.
*
For instance, a game or app that can’t be easily copied, perhaps because it’s locked into a hardware ecosystem, can typically be sold for more online than a file that contains music, because that kind can be more easily copied. When copying is easy, there is almost no intrinsic scarcity, and therefore market value collapses.

*
As we’ll see, the very idea of copying over a network is technically ill-founded, and was recognized as such by the first generation of network engineers and scientists. Copying was only added in because of bizarre, tawdry events in the decades between the invention of networking and the widespread use of networking.

There’s an endless debate about whether file sharing is “stealing.” It’s an argument I’d like to avoid, since I don’t really care to have a moral position on a software function. Copying in the abstract is vapid and neutral.

To get ahead of the argument a little, my position is that we eventually shouldn’t “pirate” files, but it’s premature to condemn people who do it today. It would be unfair to demand that people cease sharing/pirating files when those same people are not paid for their participation in very lucrative network schemes. Ordinary people are relentlessly spied on, and not compensated for information taken from them. While I would like to see everyone eventually pay for music and the like, I would not ask for it until there’s reciprocity.

What matters most is whether we are contributing to a system that will be good for us all in the long term. If you never knew the music business as it was, the loss of what used to be a significant middle-class job pool might not seem important. I will demonstrate, however, that we should perceive an early warning for the rest of us.

Copying a musician’s music ruins economic dignity. It doesn’t necessarily deny the musician any form of income, but it does mean that the musician is restricted to a real-time economic life. That means one gets paid to perform, perhaps, but not paid for music one has recorded in the past. It is one thing to sing for your supper occasionally, but to have to do so for every meal forces you into a peasant’s dilemma.

The peasant’s dilemma is that there’s no buffer. A musician who is sick or old, or who has a sick kid, cannot perform and cannot earn. A few musicians, a very tiny number indeed, will do well, but even the most successful real-time-only careers can fall apart suddenly because of a spate of bad luck. Real life cannot avoid those spates, so eventually almost everyone living a real-time economic life falls on hard times.

Meanwhile, some third-party spy service like a social network or search engine will invariably create persistent wealth from the information that is copied, the recordings. A musician living a real-time career, divorced from what used to be commonplace levees like royalties or mechanicals,
*
is still free to pursue reputation and even income (through live gigs, T-shirts, etc.), but no longer wealth. The wealth goes to the central server.

*
There are laws that guarantee a musician some money whenever a physical, or “mechanical” copy of a music recording is made. This was a hard-won levee for earlier generations of musicians.

Please notice how similar music is to mortgages. When a mortgage is leveraged and bundled into complex undisclosed securities by unannounced third parties over a network, then the homeowner suffers a reduced chance at access to wealth. The owner’s promise to repay the loan is copied, like the musicians’ music file, many times.

So many copies of the wealth-creating promise specific to the homeowner are created that the value of the homeowner’s original
copy is reduced. The copying reduces the homeowner’s long-term access to wealth.

To put it another way, the promise of the homeowner to repay the loan can only be made once, but that promise, and the risk that the loan will not be repaid, can be
received
innumerable times. Therefore the homeowner will end up paying for that amplified risk, somehow. It will eventually turn into higher taxes (to bail out a financial concern that is “too big to fail”), reduced property values in a neighborhood burdened by stupid mortgages, and reduced access to credit.

Access to credit becomes scarce for all but those with the absolute tip-top credit ratings once all the remote recipients of the promise to repay have amplified risk. Even the wealthiest nations can have trouble holding on to top ratings. The world of real people, as opposed to the fantasy of the “sure thing,” becomes disreputable to the point that lenders don’t want to lend anymore.