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NOTE: Today’s excerpt from World After Capital starts to explain why capitalism cannot solve the problem of allocating attention which is scarce at the individual and collective levels.
Capitalism has been extraordinarily successful. So much so that even communist countries like China, that had long sought a different path, have embraced it. But capitalism cannot solve the scarcity of attention without significant changes in regulation and self-regulation. That’s due to three important limitations. First, there are prices that will always be missing for things that we should be paying attention to. Second, capitalism to date has limited mechanisms for dealing with the power laws arising from digital technologies. Third, capitalism acts to preserve the interests of capital over those of knowledge. Put differently: we need to make changes now, precisely because capitalism has been so successful. The important problems that are left over are the one’s it cannot solve.
Why won’t capitalism help us allocate attention? Because the great strength and the great weakness of capitalism is that it relies on prices determined in markets. Prices are amazingly powerful because they efficiently aggregate information on consumer preferences, producer needs, etc. But not everything can be priced. And increasingly the things that cannot be priced are becoming much more important than those that can—think of the benefits from space travel, the cost of climate change, or even an individual’s sense of purpose and meaning.
There are foundational issues that prevent the existence of prices for many things. This is not just a question of a missing market that can magically be created by assigning property rights.
The first foundational issue is zero marginal cost for copies and distribution in the digital realm. From a social perspective, we should make all the world’s knowledge, including all the existing music, videos, educational materials available for free at the margin. That’s not just true for content but also for services that can be provided at essentially zero marginal cost, such as medical diagnoses. As long as we are relying on the price mechanism, we will—by definition—under-produce free resources. Another way to think about this is as follows: the Industrial Age was full of negative externalities, such as pollution, which resulted in over production; the Knowledge Age is full of positive externalities, such as learning, which implies under production. So for instance, relying on the market mechanism we will not pay nearly enough attention to the creation of free educational resources.
The second foundational issue is extreme uncertainty. Because prices aggregate information, they fail when no such information can exist. There are events that are so rare or have not occurred at all yet that we have essentially no information on their frequency or severity. This is especially true around the kind of societal event horizon that we are currently dealing with. Nassim Taleb’s work on tail risk is highly relevant here. The price mechanism cannot work when forecast error is infinite. For instance, large asteroid impacts on Earth occur millions of years apart. There is no price that can help us allocate attention to detecting such asteroids and building systems for deflecting them. As a result we are currently paying a trivial amount of attention to this problem relative to the potential damage to humanity from an impact.
The third foundational issue is new knowledge itself. The further removed the knowledge is from creating a product or service that can be sold, the less the price mechanism is of use. That is quite obvious for basic research, but is even true in applied settings. Consider early aviation pioneers, for example. They did not pursue flight because there was an obvious market with clear prices for air travel. Instead, they were fascinated by solving the challenge of heavier-than-air flight. Take the early days of quantum computing when any actual machine was still decades away. The price mechanism would not allocate attention to quantum computing at that time.
The fourth foundational issue is the deeply personal. For markets and prices to exist there have to be multiple buyers and sellers. So there is no market and hence no price for you to spend time with your children. Or for you to figure out your purpose in life. Ironically, it has been an ad campaign for a commercial product that got this idea right: Master Card’s long running series of “Priceless” ads. In the first of these from 1997 a father takes his son to the ballpark. The text reads “Two tickets, $28; Two hotdogs, two popcorns, two sodas, $18; autographed baseball, $45; real conversation with 11-year old son: priceless, there are some things money can’t buy.” Capitalism and the market mechanism cannot help us allocate attention to anything that is deeply personal.
