On the Quest for a Digital Renaissance - Tag - GDP2023-04-20T13:11:38+02:00Stephan Engbergurn:md5:3dc8aae7a46cb23955503b63709372a1DotclearCitizen profiturn:md5:ef81d5b9d402fa579413f64c1e1a8f8d2014-08-04T10:38:00+02:002014-08-12T09:12:44+02:00WO5-GANDIEconomyCitizen profitGDPGrowthNeo-classical modelsSubjective valueValue<p>Neo-classical economics and Gross Domestic Products (GDP) focus on trade
values instead of the actual value to the citizen.</p>
<p>This systemically underestimate the value of production and scew the
political focus towards what generates profits instead of what generates value
to citizens and society. The consequence is Fool's Growth is where the models
are claiming "growth" in GDP while the actual output value to citizens drop.
This especially occur in the public sector and when something reduce or prevent
competition in the private sector.</p>
<p>The first phase of the Digital Economy is to a large degree characterized by
Fools Growth where a few cartels and monopolies accumulated power through
digital infrastructure to control market processes for their short-term profits
at the expense of overall growth in Citizen Profit and society progress.</p> <h2>What is Citizen profit?</h2>
<p><strong>Citizen Profit is the individual value of a product or service
subtracted the cost of acquiring these.</strong></p>
<p>The value of a product or service is NOT equal to the price, you pay for it
- it is much higher.</p>
<p>If the value to you was not higher, you would vaste money and energy on
acquiring the product or service and - however rational you may be from an
external "expert" point of view - you do NOT vaste energy according to your own
subjective evaluation.</p>
<p>The problem is that the value of an offering to an individual is subjective
and depending on circumstances.</p>
<ul>
<li>The value of a cold beer bought in a supermarket on a Wednesday morning is
substantially different than the value of the same cold beer a Friday evening
to entertain and get in contact with a lady, you are attracted to.</li>
<li>The value to another individual of the same beer in the same place at the
same time is entirely different - maybe substantially different.</li>
<li>The value of a computer is not the combination of elements in the computer,
but what use it is to you.</li>
<li>The value to you of doing charity or helping a friend or family member is
not the coin value of the charity or the alternative income from the same
amount of time. A good friend may be easily acquired without any real effort or
unobtainable, but the value can be the difference of a life worth living and
desperate solitude bordering suicide.</li>
<li>The value of a job is not only the wage paid, but also colleges, sense of
purpose and self-esteem. social interactions, etc. I.e. it is a more complex
trade than merely an employee selling his working capacity to the employer
(customer).</li>
<li>Different citizens valuations of the same offering are entirely different.
Anyone considering a mother to a teenager trying to get help doing the laundry
would know that the teenager has an entire different perception as to what is
important and "valuable" to do.</li>
<li>Stability and progress as in the ability to cope with disaster, quality of
learning, collaborative culture, infrastructure, jobs, reserve capacity to
avoid blackouts in energy and absence of war, absence of surveillance,
accountability of crimes, absence of discrimination and freedoms are all part
of the bigger trades in society where citizens pay with their efforts (and
taxes) receiving citizens profits from the community even though not something
you can refer to any single action by any single individual.</li>
</ul>
<p>This goes for all actions and product or services trades in daily life - the
value to the citizen is complex and entirely unmeasurable.</p>
<p>In fact there is no inherent correlation between market price of services
and the actual value to the citizen. The market prize is a function of
substitution alternatives under competition to buying the services which has
more to do with supply-side competition, location and resource constraints than
with demand-side valuation.</p>
<p>It does, however, not represent at problem to citizens and markets - they
merely act as they always have.</p>
<p><strong>Why is Citizen Profit so important?</strong></p>
<p>Citizen Profit is progress</p>
<p>In the end, the quality of life is Citizen profit in all its complexity and
subjectivity.</p>
<p>If someone say that consumption is not everything or consumption is a threat
to the planet, they are missing the point as both the unmeasurable values and
cost of e.g. recycling is included in this understanding. Your perception of
value is subjective and thus emphasize what is important to you - not what is
recorded in some corporate income statement or stored as "property" in the
basement of your home. And the cost is all cost including the cognitive energy
invested in evaluation of alternatives and the cost of sustainable resource
usage.</p>
<p>If someone say this is a "neo-liberal" or "socialist" perception of quality
of life, they are in reality merely arguing against their own straw-man.
Political questions such as whether wealth redistribution create additional
value or destroy more value is not obvious and no inherent position on this
topic can be derived from the definition of Citizen Profit. The approach is
agnostic to such rather ideological questions.</p>
<h3>Present macro economics is flawed biased towards the counterproductive as
Citizen Profit is excluded</h3>
<p>Neo-classical economic models (all the ones used when "experts" discuss
quantitative economics) are extremely biased in the sense that it only focus on
the value turned into formalized (and taxable) profit. This leads to
counterproductive decisions and prevent value creation.</p>
<p>The main problem is that GDP not measure output, they only measure market
value. Further GDP only express value in the private sector, in the public
sector GDP only include cost of inputs.</p>
<p>This of course present macro economist based on model econometrics with a
conundrum. They want to predict and explain, but without the ability to
measure, what value do their models have?</p>
<p>The consequences is that when model economists discuss "growth" they are in
essence talking nonsense as there is no correlation between the actual value to
citizens and society on one side and on the other side the data and policy
evaluation done by model economists.</p>
<p>In fact the models actually favor dysfunctional markets and ineffective
public sector as market monopoly profit would in isolation create higher
"value" according to the model. These models favor debt-driven consumption of
products and services based on scarce resources or dysfunctional competition
making them very dangerous if used to valuate alternative policies.</p>
<p>The jobs these models see and "assume to create" are based on higher
consumption measured on market prizes. Citizens pay for the jobs with higher
market prices and lowering Citizen profit just as the financing cost of
politically induced spending has to be repaid later through e.g. higher taxes
or devaluation of currency.</p>
<p>The essence - to talk about growth as anything else but increasing Citizen
profit leads to counterproductive actions, in-optimal resource usage, lowering
quality of life and reducing the competitiveness of the economy.</p>
<h3>Fool's Growth problem</h3>
<p>A key problem is what I suggest to call the Fool's Growth problem - Fool's
Growth s is the effect when GDP increase, but Citizen profit decrease, citizen
profit being the value to the individual customer of any process above what the
citizen has to pay for the products/service.</p>
<p>When the public sector makes bad investments or use force to standardize
services, GDP can raise at the same time as the Citizen profit decrease. E.g.
when military spend a lot of money on weaponry, some new regulation restrict
citizens unnecessarily or central government dictate one-size-fits-all
processes that cannot - through choice - adapt to individual needs.</p>
<p>The same occur when e.g. monopoly or cartel structures in digital
infrastructure reduce competition and introduce new powerful entities into the
value chains that benefit directly from monopoly profits or indirectly from
preventing alternative competition that would not give them profit. Such
structures may often introduce negative externalities meaning additional costs
or mis allocation of resources elsewhere in the economy.</p>
<p>Fool's Growth is perhaps the biggest problem in the digital age as it leads
to the use of force to benefit the few where free choice in true market
processes would have create a huge growth in Citizen profit as benefit of
demand-driven digitalization.</p>
<p>Fool's growth It is the consequence of dysfunctional competition where some
entity - government or commercial - are able to introduce mainly digital
mechanisms. This was hard in the pre-internet world as citizens would not
voluntary participate in deals that would not be seen as beneficial to them.
Problem is that e.g. through regulation enforced mechanisms,
cartel-standardization, hidden control-were, behavioral controls or e.g. some
of the market-detrimental winner-takes-all models, players in the digital
infrastructure can create structures that are seemingly creating value while
destroying a lot more value elsewhere or later to the same citizen.</p>
<h3>Free choice is the ONLY driver of Citizen profit and progress</h3>
<p>The answer to the riddle is free choice or ensuring and allowing the citizen
to act as the final judge on value.</p>
<p><strong>It is the rejection that puts pressure on providers to improve
Citizen profit</strong> - either through rationalization of production
processes to reduce costs or through product and service developments to create
services that are better suited to individual needs. This engine of free choice
is the very motor in all progress. Science may invent opportunities and new
insights, but the driver of progress is the change resulting from free choice
and competition.</p>
<p>In fact, a key and unchangeable consequence of the subjective valuation is
that <strong>only free choice can maximize Citizen Profit and thereby society
progress</strong>.</p>
<p>This leads to a normative conclusion. We can and must do all to support and
created the Empowering framework - bot legally, technically and otherwise (e.g.
knowledge) - but in the end progress is a function of free choice and no
elitist, ideological or model should be allowed to claim otherwise</p>
<p>This is NOT an ideological statement for laissez-faire. Especially not in
world where technology is used to control actions. It is a statement that we
need to be very careful to apply means that respect and support real choice.
And to be strict on requirements to technology design.</p>
<p>This is NOT - in itself - a rejection of taxes and wealth redistribution. It
merely means that the micro allocation has to be done by individual citizens to
ensure value of tax money and it puts the pressure on those arguing for wealth
redistribution and public choice to separate ideological arguments from
economical.</p>
<h3>The Law on Increasing Citizen Profit</h3>
<p>Any well-functioning economy and society can thus be measured on its ability
to grow Citizen profit and all actions should be seen in this light.</p>
<p>And the reverse statement also abide, in a well-functioning economy citizen
profit will over time grow as competition and free choice will drive progress
and increasingly better sustainable resource transformation into individual
citizen profit.</p>
<p>Any well-functioning society will have Citizen profit as its primary
objective. Whether the Healthcare sector is owned by the state or companies
matters less compared to the question of - does it create Citizen profit or
merely state control / corporate profit?</p>The increasing failure of neo-classical economic modelsurn:md5:235c738946a3a2ac660f55758077076c2014-07-30T11:25:00+02:002016-08-12T08:50:43+02:00SE2425-GANDINeo-classical EconomicsGDP <p>Neo-classical economics focus on what we can measure. Reasonable to a large
extent, as we of course wants to do our best to understand progress and predict
consequences of actions in order to be able to respond in time to prevent
unpleasant developments. The has always been so but the Financial collapse of
2008 has significantly increased the focus and attention on trying to predict
and prevent economic problems.</p>
<p>However, the desire to be able to quantify and predict make the econometric
models heavily biased and misleading. They and GDP (Gross Domestic Product) do
NOT measure value produced and are as thus extremely dangerous to guide
policies. What happens is that the models adapt policies to the flawed model
assumptions. This facilitate a serious bias towards system preservation and
away from policies facilitating true progress and growth.</p>
<p>However unsatisfactory from a position of Economic Management, we truly need
to <strong>focus more on the complex causality and less on the numbers</strong>
emerging from biased and increasingly misleading econometric models.</p>
<ul>
<li>The main problem - they do not measure value</li>
</ul>
<p>Economic models that assume GDP express value created in society are utterly
wrong.</p>
<p>Not only because some processes are omitted (e.g. voluntary such as friends
helping each-other, social such as household or black market selling e.g.
homemade products or even shady services such as prostitutions or even criminal
activities) or economic elements included wrongly (e.g. the cost of
externalities in case of pollution or non-recycling of non-renewable
resources)</p>
<p>The real problem is that the very outcome of value chains are grossly and
increasingly worse misrepresented by the market price. They simply ignore the
<a href="https://blog.privacytrust.eu/post/2014/07/18/Citizen-profit" hreflang="en">Citizen Profit</a>
despite this is the fastest growing and accumulating proportion of the
economy.</p>
<p>When you work with models that do not understand value, how can you say
anything meaningful about quality of investments and Public Choice?</p>
<ul>
<li>The Innovation problem</li>
</ul>
<p>Beyond the value problem is an even bigger problem when talking about
predictions.</p>
<p>Innovation and growth is about CHANGE - we only improve by more rational
processes, better sustainable resources and better adaption to individual
needs. But this means that growth is essentially about change and doing things
in new ways!</p>
<p>How can you predict this without simply modelling the assumptions of the
claims turning the process of answering and calculating consequences of
questions into assuming themselves without anything that resemble science and
testable prediction?</p>
<ul>
<li>Finally - both these problems are growing in the digitalization phase where
change is biggest and individual value (should be) exploding.</li>
</ul>
<p>The Digital transformation represent a radical departure from previous
market processes in many ways.</p>
<p>First and foremost the individual part of any product or service is rapidly
increasing and thus so does Consumer Profit. The fight to control individuals
though Digital Infrastructure at the expense of Citizen profit is key to the
problems of our time.</p>
<p>Second is that change occur on a most faster and continuous basis in many
directions at the same time. Digital Value chains reorient and reconfigure
themselves much faster, dynamic and in complex ways compared to earlier. This
means that not only prices, but the actual structure and dynamics of a market
change constantly making models assuming Status Quo increasingly useless to
describe and especially predict economic change, Worse the models are often the
source of problems.</p>
<p>As a simple example - the financial crisis of 2008 what the result of a
massive increase in lending that fueled unsustainable "growth" according to the
models. This was the consequence of a double failure - first a political as
government globally pushed for growth and pumped liquidity and relaxed
restrictions on lending everywhere. Second in the private sector where
short-term profit without due consideration as to the massive bubble effects
created accumulated a snowball that did with devastating effect.</p>
<p>But fact is that neither governments or market seems to have learned from
the mistake. Bubbles are back and e.g. US government debt is exploding. Again
model economists try to create "condifence" that this time they have it under
control - they haven´t as they simply do not understand what is happening.</p>
<h2>We need a Digital Renaissance on economics</h2>
<p>The models simply don´t work for their usage and assuming they work is one
of our biggest problems creating mistakes from doing more of what created the
problems in the first place. Because the models claim that growth is just
spending instead of focusing on sustainable value creation.</p>
<p>The root problem is the desire to control. Just like the safe of a Bible
defining the World made the Vatican Priests fight so hard with the Inquisition
to maintain order in the Universe so does model economic and bureaucrats to
force society into their models, however flawed and damaging this process may
be.</p>
<p>The outcome is not much different from Communist Chinas <a href="https://en.wikipedia.org/wiki/Great_Leap_Forward" hreflang="en">Big Leap</a>
ending up in hunger and disaster as they simply had no idea as to what the
complexity of that they were trying to control. Just like China didn´t blossom
until the Bureaucrats released control and European economy grew rapidly after
the Reformation, the world today is calling for a release of assumed economic
control based on flawed and biased models. (But in all honesty, China also
represent the best example against anarchistic laissez-faire, e.g. on
environment issues as markets suffer from serious negative externalities unless
careful attention to frameworks is politically ensured)</p>
<p>We shouldn´t stop trying to understand and model, but we need to understand
that adapting policies to what we know is flawed is worse than releasing
controls and focusing on the frameworks of empowered citizens directing value
chains to produce Citizen Profit.</p>
<p>In some ways the second Digital Renaissance is a revolt to the first Natural
Sciences Renaissance as it has created and environment in which social
processes are assumed to be run like a Scientific model - the very failure that
former Eastern Europe and many others taught us is very dangerous.</p>
<p>We need to question what we can/cannot model while in parallel focus on the
digital frameworks.</p>