No Pain, No Gain

My first Tech Central Station article is now online. The piece, titled "The Purpose of Pain," is about the similarities between physiological signals like pleasure or pain and market prices, which signal costs and benefits. It has an explicit Hayekian/Austrian influence, which should please some of my non-neoclassical cohorts. This one's for you, Catallarchists!

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wow - that a well written

wow - that a well written piece. Something I could send to my democrat mom that she'd understand.

Well said Micha. I've often

Well said Micha.

I've often thought that the real genius of Western Civilization lay in feedback. Not only in terms of economics. But, science with its emphasis on replicable experiments and politics with elections giving feedback to political leaders. This more than anything explains the ascendancy of Western Civilization than any other.

This is very good. Prices

This is very good.

Prices perform the information function in a market economy, enabling actors to perceive the real costs of what they consume, and to relate them to the perceived benefits. When this feedback is distorted, irrationality is introduced.

That's why the state sector--the transporation sector, R&D funding, etc.--on which state capitalism is most dependent, continues to expand out of control, and yet is bottlenecked at any given time. The whole point of providing these services through the state is to relieve business of bearing the full cost of the resources it consumes, by providing them collectively through the state to the corporate economy as a whole. The result is that there's no incentive for a firm to ration its consumption of them. So the demand for such services continues growing exponentially, faster than the state can appropriate money to meet the demand.

But cost can never be destroyed--it can only be shifted. TANSTAAFL. Businesses operating above the size of maximum efficiency, and dependent on transportation and other factors beyond the optimal level, are rendered artificially profitable by shifting part of the cost side of the ledger to the taxpayer or the competitive sector of the economy. Since the businesses that benefit from consuming these factors don't feel the cost, and since those paying the cost have no control over it, the result is mushrooming irrationality.

Eventually the chickens of rationality come home to roost when it is politically (or physically) impossible to take any more from the producing taxpayers, to subsidize the inefficiencies of growth. At that point, the whole system will crash down around our ears.

I think the closest analogy is the hormonal feedback mechanism that regulates growth in the body. When that feedback is distorted, the result is gigantism or dwarfism. And giants typically die in their thirties from the strain of supporting their own weight.