Author: Curt Doolittle

Riddle: “If dropped toast always lands butter side down and cats always land on their feet; what happens if you strap toast butter side up on the back of a cat and then drop it?”

Answer: While this is a question of probabilities not certainties, in general, the cat-force is greater than the butter-force, assuming the cat is still alive that is. But we’d have to verify it by empirical testing. I can supply the butter and toast, but you would have to supply the live and dead cat. I”m allergic to them. At least, the live ones that is.

I was listening to a lecture by Roderick Long this morning, entitled “The Moral Standpoint” which is part of the series “Foundations of Libertarian Ethics: A Philosophy Seminar” (Available from Mises.org). In this lecture, Dr Long (who I enjoy and admire, not the least of which because he is very funny and charming in person) attempts to analyze the reasons for the popular rejection of libertarian solutions to political problems. And while I agree with Long’s arguments, as far as they go, I also understand, that the resistance to libertarian solutions, of which there are many, is the preservation of status that comes from the fog of our current, ambiguous, and unclear political order. In general, libertarian solutions propose fact-generating, and evidentiary solutions that expose causality. I tend to talk about these category of solutions as ‘calculable’ in the sense that they provide sufficient information to assist us in making decisions, and they do not permit the ‘laundering’ of causailty by the pooling of accounting information. THe problem with the clarity of libertarian solutions is that people enjoy the ‘fog of reality’. THe same way we all believe we are in the upper ten percent of our fields, we all believe we are contributing members of society, when in fact, we cannot all be in the upper ten percent of our fields, and it’s quite demonstrable that the only contribution most people make to society is to cause work for others, to provide local clerical or manual labor, to refrain from stealing so that we can create the institution of property, and to fill land so that others don’t take the earth’s potential from us. We do not want a clear mirror in which to see our true reflection, but a foggy one, that preserves our self-illusions – illusions that help us exist in a division of labor where indeed we may have little importance or relevance to one another, while at the same time, benefiting from the vast decreases in costs that such a division provides for us. We trade our ability to perceive causality for our mutual prosperity. Our status, which is, effectively, our access to mates, and often access to social groups, is more important for the political and lower classes than it is for the high performance (merchant and finance) sectors, who achieve that status by causal means in a division of labor, under the institutions of trade and exchange. My argument, which is contrary to general libertarian propositions, is that redistribution of profits from interest are the only means of resolving this status conflict – we have to pay other classes. And that the libertarian political strategy is effectively to propagate it’s value system, under the guise of moral or religious traditions, which it cannot, because it is against the status advantage of the less meritocratic classes. And while the libertarian position is to return to the gold standard, or some variation of it, the problem with that position is that, as the division of labor and knowledge increases, and especially as we urbanize, credit is the only means of preserving the social order – which means respecting property – as well as an identity for encouraging cooperation that was perviously created by nation, religion, village, tribe and family. Just as laws are a punitive system that apply to all equally (hopefully), credit is an incentive system that is more effective than law, because it does not require policing, just recording. And incentives under credit, are positive, and under law, negative. Furthermore, we need insurance provided through fiat money, or at least common money. Otherwise we are privatizing wins and socializing losses. The problem with the Rothbardian concept of banking and money is that in the end, it privatizes wins and socializes losses. This is justified in that model under a number of guises. however, what Rothbards model (and Mises as well) ignores, is that in order to create the institution of property people must forego their opportunity to employ violence. This redistributes violence across people who DO respect property. And therefore, any group of people who deny violence in order to create property, redistribute their violence and thereby pay opportunity costs. As such, a failure of profits from credit to be redistributed are a theft, and redistribution is mandated. By avoiding this conversation (or not understanding it) Mises and Rothbard, as well as libertarians in general, circumvent the problem of maintaining land, and creating the institutions of property. The poor, as long as they are not immigrants (who under this model are thieves – explaining peoples reaction to immigration) by respecting property, and denying violence, are due redistribution, which explains their use of violence (their repossession of their contributions). And a failure to redistribute a portion of profits is simply theft from them. CRedit and interest are the means by which we can do so, if, in the end, we are borrowing from them.

Date: 2009

I’m the CEO, and one of the founders of Ascentium:  a 600 person, $100M mixed marketing and technology agency¹ that we started in 2001. We’re one of the bigger independently owned agencies, and we have grown very quickly, at from 60-100% per year.

Someone asked me a question about two years ago, when I described the depth and duration of this economy, and what it would do to the agency world. I described the failure of the trial and error method of advertising on the web. The drop in funding for media.  The general economic conditions and what that did to buyers.    That question was “If we aren’t marketing the way we should, then what should we do instead?”.

I just didn’t have a clear enough answer.  And I decided to do something about it.

For the past year, I have been working on a way of looking at advertising and marketing.  I’m calling it a Pure Theory of Marketing.  It’s a little different way of looking at the world. But then, our world is different enough that we need a new way of looking at it. Not just at our tools and channels, but at what it is we’re saying to people, and how we say it. And we need to understand WHY so we know WHAT it is we should be doing instead, and why it will work.

And I started this blog to talk about it with whomever will listen.

Of course, I’m putting out a book, because, that is what one does for legitimacy in the current environment.  But a book is not citizen of the web, despite the web’s effect on the citizens and book industry. It’s static. It doesn’t change quickly. It cant be revised. It isn’t a dialog.  (You know some of the great philosophers didn’t write much down, and they walked and talked instead for a reason.)  I’m a citizen of the web. Our business is a web-business.  The world still changes too quickly for print. Blogging is so much more rewarding if you appreciate discussion.

Marketers pride themselves on building a wide audience.  On appealing to many people. But that’s not what I’m trying to do. And I couldn’t if I tried. Instead, I want to reach CMO’s, CEO’s, Senior Agency talent, and frankly our own talent, and that talent that might want to join us.  And I want to help people understand the future of 1-to-1 marketing, as something very different from the era of big media.

We’re in a new and different world. And it’s a better one, if you know how to make use of it.

1. Think Razorfish — except they’re owned by Microsoft, and we aren’t, and we predominantly use Microsoft technology, and they don’t; a fact we find somewhat humorous at all three companies. [↩]

From: www.puretheoryofmarketing.com (offline)

Key Ideas:

1) Business exists in the sociological context. That means that companies, and agencies, are organized in order to sell according to both our assumptions about society, and the way society is organized, and the commonly held beliefs in society.

2) What we think of as the consumer culture, is part of the process of post-empire, post-war western european cultural dissolution. That culture emerged as a series of identities that made people very similar, and therefore easy to market to using mass media. But we are no longer living in a world of postwar consumer identities. Where people were the same. With same ambitions and beliefs about what made a better life. But we aren’t the same anymore. We’re not even similar.

3) Our citizenship today comes not from service to the state, or from religious affiliation, or even from cultural affiliation, but from debt participation. We aren’t united in any set of beliefs or myths other than as consumers. As consumers we have different consumptive and productive abilities. So we are buying our identities with goods rather than adhering to mythos and beliefs. In other words, globalization is happening in America as well as everywhere else in the world. We are finally returning to the level of globalization that we had prior to 1900.

4) Identities are not just fashionable, they’re necessary. Without a shared mythology or shared social beliefs, we literally cannot judge ourselves in such a vast division of labor, or know our status or progress in life, or even what is ‘good’ or ‘bad’ without these identities. These identities are our belief systems. Imagine we lived in a world without numbers, without clocks, without myths, without formulas. Humans beings literally can’t think. they can’t make judgements. Rational civilization has made our mysticism, our world of magic, into one that at least appears to be rational. But we take for granted advanced technologies like time and myths, without understanding that they are formulas that we use to calculate the future. Formulas that we use to make judgements. We live in a complex world where we almost never have enough information to make any decision, which forces most of our decisions to be tie-breakers. Our formulas, our myths and most importantly OUR IDENTITIES, are how we make tie-breaking decisions in real time. Without identities we literally cannot think, any more than we can think without numbers, common sense, or time.

5) Agencies think its hard to create ads and make money in major media, because of the infiltration of the web. But that’s only a symptom of the social change. The web has helped facilitate that social change. But that change was there before the web. Agencies, marketers, creatives, and even, indirectly, CEO’s, are selling products into the postwar identity, using companies, marketers, agencies, and media channels, that were specifically developed to sell into that homogenous postwar population, each of whom had the postwar identity.

6) It’s not just ads, not just campaigns, not just marketing that needs to change. We have to restructure business to sell into this new world order. We have to restructure marketing departments. We have to restructure agencies. Mass media will still have it’s place. But it will largely be for poor people, and major media will continue to become the channel for poor people, rather than postwar consumers.

7 ) Agencies need to learn how to build campaigns and creative for multiple channels, and multiple identities, and to accumulate consumer attention and loyalty, rather than sell broad big-win campaigns into the postwar narrative. We need narratives that appeal to identities. That help people build their identities. Rather than market to absurdity, which is the only common factor the fractured-identity-world we live in can comprehend, and the only campaigns that work today. We need specialized agencies that monitor identities and match them with people, and their disposable income.

8 ) Marketing organizations need to build ‘wardrobes’ of identities, and survey those identities, not their products, but the identities that those products service, rather than demographics, which are simply geographic representations of the postwar identity. These identities then become markets with measurable success criteria. In effect, giving marketers a portfoilio of measurable assets. Marketers need to learn to build campaigns that consist of multiple narratives that sell into a ’set’ of identities, each of which enriches that identity. And to build accumulating interest by consumers rather than asking for their direct attention. This creates a sense of sincerity. It may be that many marketers cannot exist in the post-postwar world of the citizenship-by-debt-participation society. It’s up to you to change. Society changed already. Campaigns need to keep a heartbeat. A lot more of your job will be to determine what’s popular in six or eight different identities rather than to simply shop popular culture for the most widely appealing message. I’ m overstating this a bit – but marketers all want to do what they did yesterday and call it creative. So we need to overemphasize the difference for a few years.

9) CEO’s need to demand that CMO’s become to the brand asset what CFO’s are to financial planning and controller’s are to cash. Balance sheets and income statements need to track brand asset on a timely, if not weekly basis. CMO’s need to have a portfiolio of identities and the measurement of how that product sells into an identithy and plans for addressing each identity and budgets for doing so. CEO’s need to hire external auditors who will audit that brand information so it’s not fudged any more than real estate values are fudged. CEO’s need to look at identities and products and services as related investments, and develop budget and funding processes. The unspoken issue here is that many marketers are campaign managers, not brand managers, and you may have to fire a lot of them, or train them with discipline to get them to perform. Conversely, the board should fire a CEO for NOT doing this because if the CEO doesn’t do it, it means he or she is behind the times, uncompetitive, ignorant of the company’s asset holding, and not fast enough to manage a company in our new environment.

10) Shareholders need to hold companies accountable for brand measurement. Most of the nonsense that is possible for CEO’s to pull off, and destroy asset value, is done because a) we measure only postwar and prewar assets (cash and real property) instead of market potential and employee potential, and b) because accounting rules exist largely to help organizations avoid taxation, or adhere to regulation that increases taxation instead of accurately reflecting the business’ performance, rather than provide accurate pictures of performance in the service of customers and investors, and c) accounting processes are mired in an ancient past, and because of the primarily manual (rather than macro-transactional) nature of the accounting processes is unsophisticated and only reinforces the antiquated culture in accounting.

11) By building our businesses around the new sociological context: the culture of citizenship by debt participation, we can make more profits, build better brands, dispose of antiquated companies, and literally change society for the better while providing an opportunity to a new generation of entrepreneurs, marketers, and creatives who, rather than sit mired in a decade long economic depression, can help raise us out of it by transforming this complex and fascinating world we live in.

12) For technologists, I have given you a glimpse of that amazing future that is very different from the engineering that you have done since 1960. Your concept of what makes ‘good’ technology is dead. Put a stake in the vampire’s heart. Pattern oriented, durable code that is deep and rich and flexible is as useless as phlogiston theory. Discreet data and documents are dead technologies. The future is perishable, not flexible. It’s where subjectivism is incorporated into the code. It’s not isolating companies from consumer subjectivity, but collecting and analyzing consumer subjectivity. Not periodicity. But non-periodicity. If you’re smart enough to guess what that means, then you have a career ahead of you. We can change the world if you’re willing to change your thinking. If not. Go find the guys who write COBOL and ask them for a job.

This set of steps will build the 1to1 marketing capability that business and consumers need today, to service their wants. And it will fix the corporation that consumers feel alienated by – because without these processes, capitalism’s core, which is to serve customers, is being undermined by market failure: ‘general liquidity’ and risk-driven bankers, result in the concentration of capital in large companies that allows businesses to get away with poorly serving customers.

There is more to it. But this is the core of A Pure Theory Of Marketing.

And there is only one company that can help you make that change: Ascentium

www.puretheoryofmarketing.com

A Pure Theory Of Marketing: December 2009

Table Of Contents

1. INTRODUCTION
2. THE ECONOMY OF MARKETING
3. THE FUTURE: A THEORY OF MARKETING
4. COMMUNICATING WITH CONSUMERS: CAMPAIGNS
5. RETAINING CONSUMER ATTENTION AND LOYALTY
6. THE MARKETING ORGANIZATION OF THE FUTURE
7. THE EXECUTIVE ORGANIZATION OF THE FUTURE
– The ACCOUNTABLE CMO:
– THE CEO, AND ADDING THE FUTURE ORIENTED ASSET OF BRAND POTENTIAL
8. THE AGENCY OF THE FUTURE
9. THE ECONOMICS AND ETHICS OF MARKETING AND ADVERTISING
10. CLOSING SUMMARY

Comments on “A Pure Theory Of Marketing”

“This is a manual for CMO’s, CEO’s, Shareholders, and Consumers. It’s effectively a theory of marketing. And because of that, it’s a prescription for the future. It’s the biggest change in marketing MANAGEMENT since the television era. It will work not because it is a fad, or because it’s inspirational, or because it’s a tactical improvement, but because it is pure economics and sociology: because once consumers, shareholders and investors understand what I’m saying, the will DEMAND that much of it be implemented in companies. Because taking better care of customers is taking better care of investors. In other words, we can solve the problem of ‘the corporation’. It not only tells us how to market: how to talk to people, create the right narratives that will engage them, but how to organize our marketing organizations. We can solve the under-funding of marketing. we can solve the waste of marketing dollars. The problem in marketing hasn’t been marketer’s laziness, so much as their lack of a means of working in a quantitative world, and therefore their dismissal by the executive team as irresponsible. But if you follow what I recommend, the only person who can fail, isn’t the CMO. It’s the CEO. And CEO’s are pretty good at preventing failure – especially when it’s theirs.”

“I’m not so much simply confident that we should recommend our customers begin transforming their organizations, as I feel that it’s a deterministic process that will punish companies who do not.”

“I am sure somewhere, someday, someone will figure out that this theory of marketing solves not only a business problem. But it solves a social one as well. Marketers can build a better world, and make money doing it, and make consumers happier, rather than be next in the line of disrespected professionals, with the unenviable claim that at least they’re thought better of than prostitutes, politicians, journalists and lawyers.”

From: www.puretheoryofmarketing.com (offline)

December 12th, 2009 

The short answer is that the current trends will continue. The traditional AOR relationship will increasingly face being displaced by agency teams composed of specialty firms who can manage the complexities of existing and emerging channels, media, and technologies. This is for simple reasons: our organizations are different from one another, because the tasks we perform are different from one another. Even organizations like Sapient or Ascentium, which have separate business units that perform consulting or technology specialties, have them to augment their business model, not to augment the traditional agency business model.

The problem, for clients and for agencies, is overall stewardship of the brand across these specialized teams of agencies, channels, and media. Some clients will manage it themselves; others will choose agencies to specifically handle that challenge. And the talent to do so will become a primary challenge for CMOs. Should shareholders and boards begin to demand responsibility for brand performance, as an asset more tangible than our current fixed asset mythology, they will hold CEOs accountable rather than allowing them to offload this responsibility to CMOs who they regularly dispose of as a convenient distraction.

Over time, we have seen a steady reduction in the ability of any company to project and control its brand. The relative influence of the consumer, brought about by a combination of social, economic, and technological factors, is redefining the way in which marketing is used to influence a company’s brand and by extension make an impact on its sales and profitability.

And while the dependence on advertising per se to promote a company’s products or services remains unchanged, the ability of a company to influence or manipulate customers through traditional short format ads is also in general decline. There is not enough information density in the short format to develop a vision that is intimate.

We have been selling a very aspirational message, “the American dream,” for a long time. And now, in most advertisements, we are selling nihilism or sarcasm, which is the very opposite of the contemporary consumer desire for membership in communities, within a class or tribe. Brands have to help people achieve that goal. The short format can do so, but only by segment, not by the broad distribution of low content ads that was possible for general household consumer goods.

Combine this phenomenon with the change in consumption habits—that’s resulted from the major economic upheaval and that’s becoming ingrained in our culture—and technology’s ability to amplify an individual’s sphere of influence, and we will see the role of advertising shift from selling the aspiration for “the American dream” to facilitating the creation of our individual identities and our interaction with other like-minded people.

To support these shifts, marketing will become more about providing access to rich format narratives that reach out to segments or communities of individuals who share common beliefs, preferences, and consumption habits. It will be the role of agencies to produce this increasingly complex and micro-targeted narrative content that people will seek out and want to consume. And agencies will be required to execute the distribution of this highly segmented content across multiple platforms, devices, and media.

In the golden age of movies, the studios not only controlled the creation of content, but, through ownership of movie theaters, they also controlled its distribution. In the future, as agencies increasingly become sophisticated content providers, they will need to, not unlike the studios, develop and execute the means by which content is distributed to multiple screens—on the Web, mobile devices, digital out-of-home media, or via technologies we haven’t even thought of yet.

And while it is not inconceivable for a holding company to purchase a business or channel like Facebook and limit advertising on it to select customers using select messages—thereby making the Web destination a profitable as opposed to a money-losing distribution channel—it is more likely that these channels will require certain formats and types of content (Facebook apps are effective, Facebook ads are not). This requires an understanding of not only the channels that require rich content versus short form content, but also the technology required to leverage the channel sufficiently to motivate consumers to act.

It is this combination of the ability to develop and distribute highly relevant and rich narrative content that will be the primary role of the successful agencies in the future. They will be required to marry the account management skills of the large agency, the creative energy of the independent shop, and the technology prowess of the digital agency.

From: www.puretheoryofmarketing.com (offline)

December 12th, 2009 § 0 Comments

Agencies play the same role they have for the last century. they create and distribute specialized content in an attempt to increase revenue, create and maintain relationships and ultimately profits for client organizations. What has changed during the last decade is not so much the purpose for which agencies exist, but the relative importance they play in relationship to one another at any given account. The diversity of clients’ content needs in today’s marketplace has led to a greater diversity in agency players who work with one another on any given account. Clients are no longer necessarily looking to one agency of record to fulfill all their marketing needs. And agencies continue to specialize in the service of those diverse needs.

Historically, agencies were responsible for creating short format “ads” to reach the broadest possible audience and to be distributed across the narrowest channels—broadcast and print media. These short format “ads” still dominate, but with the advent of database marketing, email, the Web, and now social media, content has shifted to richer, more interactive “experiences.” This new content is increasingly influential in consumer decisions because short format advertising is proving less effective at creating loyalty to a company, product, or brand image.

Response to the demand for and impact of these new forms of content has resulted in the evolution of a new class of “digital” agencies. Starting with the presentation of static content on the Web, followed by the emergence of rich media, and amplified by the emergence of social media—now including multiple applications, devices, and tools—these agencies are connecting consumers with clients and often consumers with each other, all wrapped in the banner of particular brands.

Today, there are too many areas of expertise, and the organizational methods needed to produce and distribute the content are too diverse, for any single AOR to manage.

For example, the creative team responsible for innovation using any particular medium requires a high level of mastery to exploit that medium sufficiently to influence consumers who scarcely have the attention to devote to any particular bit of advertising.

Not only is there a limit to the degree of excellence that can be produced, but then reward must be distributed to these creative people according to the excellence produced. This means again, that excellence favors organizational diversity, which is not typically found in large traditional agencies.

And finally, the organizational structure that is needed to produce excellence in each medium is somewhat different. While creative people exist in each type of agency, and with differentially specialized talent, the majority of the employees are in delivery focused roles specific to the medium in which they work. As Olgivy states “…about 60% of ..(agency staff) … do clerical work.” a similar trait exists in technology focused agencies where the vast majority of employees fill technical rather than creative roles..

And the operating principles are very different across each of these cultures. In a traditional agency for example, traffic management is nowhere near as complicated as project management is in a technical or digital agency. While the difference may not be as significant in digital advertising, since it is effectively placing ads according to a process similar to offline ads, it is quite different in digital marketing firms, where the content is both interactive and participatory, and the problem is not the marginal quality of the work as determined by subjective and momentary emotional response, i.e. did I like it, but by sustained attention from the interaction, i.e. did it work.

Most companies continue to look to traditional agencies to do their advertising: one to many communications that drive brand awareness and when applied to direct response influence propensity to purchase. These agencies are best suited for this work. They are organized around efficient production, from their business models to their talent acquisition, retention, and compensation strategies. But while these large agencies and networks can provide the scale and account management needed by large enterprises, they tend to be more risk adverse in their creative and excel more in their abilities at production than in their disruptive ideas.

When corporate marketers really want to make an impact, they increasingly turn to small shops that are usually built around a single creative force—likely a refugee from the large agency world who was constrained by his employer’s risk aversion. These smaller agencies are willing and able to take much larger risks with their work, in part because they tend to be lifestyle businesses (specifically compensating the risk taker) rather than growth and profit-oriented firms. While they can deliver groundbreaking ideas, they tend to be limited in their ability to execute and are unable to scale. This is usually the result of limited access to capital and a dearth of business-driven management talent.

And then there are those agencies in the middle. In today’s agency world, the opportunities for newcomers and growth has been centered around new technologies—this is the area where most new successful agencies are coming from and are generally lumped together under the category of digital agencies. Up until the recent economic downturn, these agencies were attracting new customers, new talent, and most importantly, new investment dollars that allowed them to grow and expand their scope of services and clients much faster than their large and small counterparts.

Their financial success is owed more to not being saddled with the institutional constraints, high overhead, and aversion to risk associated with the large traditional agencies than to the innate superiority of their ideas. And on the other end of the spectrum, they are free from the limitations to growth and scale that hamper the small creative shops that have less access to investment capital and less operationally talented executive management.

From: www.puretheoryofmarketing.com (offline)

Over on Winterspeak, I found another convert.

….a bank should be required to keep all loans it makes on its books until maturity.

In under six hundred words he provides a solution to a great deal of the problem. I’ve extended this basic line of reasoning to explain WHY banking should be run this way, WHY the public should and must insure banks, and WHY we can provide redistribution using these institutions, and HOW to look at government differently. But then I’m trying to solve the broader problem. To determine how we must govern, we must agree on what life we desire. To agree on that life we must understand what kind of creatures we are. These two statements are as old as philosophy itself. However, these ancient questions are formulated with an assumption about our power of decision making: we may not be able to make decisions with out the institutions that help us do so. The civic republican tradition of political participation assumes we can make such judgements, or that we need only philosophical knowledge or religious tradition to do so. When, at some level of complexity we cannot sense the data with which to make these decisions in any possible way. I’ve included the article here in it’s entirety for posterity.

Winterspeak The Public Purpose Of Banking THURSDAY, NOVEMBER 12, 2009 The Public Purpose of Banking While Lloyd Blankfein claims bankers are worth Billions, even as they destroy Trillions, it’s worth taking a look at what the public purpose of banking is. Chicago economists, sit back down, the public purpose of banking is not to enrich their shareholders any more than the public purpose of pharmaceutical companies is. Capitalism works by enriching owners as they compete to provide some value to customers. So, what is the value that banks deliver to their customers? First, what is a bank? My definition is simple and goes to the heart of their public purpose: a bank is an entity that has a reserve account at the Fed. That is it. If you have a reserve account at the Fed, it means you can lend unconstrained by your reserve balance. Briefly, this is how it works: 1. You make a loan. This debits your reserve account, and you credit a receivable account. 2. The loan gets deposited, which credits that reserve account, and credits a liability. Note how the loan created the deposit, not the other way around. 3. If the loan and the deposit are made at the same institution, that institution has no net change to its reserve levels. If the loan and deposit were made at different institutions, then the institution short reserves borrows what it needs from the institution long reserves overnight. That’s it. If you or I make a loan, we cannot use the reserve credit that the corresponding deposit creates to top up our own reserve levels. Thus this clear, operational difference between banks and non-banks. Ultimately, the Govt creates all reserves, so why not just have the Govt make loans directly? Because we do not want the Government to make credit decisions, they are too likely to dole out money to politically connected constituencies, while starving worthwhile, but unconnected borrowers. You can see this today, as banks and unions get Billions, while shop keepers, dry cleaners, manufacturers, and restauranteurs shutter their businesses and go on the dole. An institution that makes loans it knows will not be paid back is not making loans at all, it is making gifts, and the operational bankruptcy of the FHA is a great example of this in action. Many adjectives come to mind: corrupt, wasteful, abominable, unfair, fraudulent, etc. This is the opposite of Responsible Governance. Barry, we really expected more. So, to keep responsible lending, we put private capital infront of public capital and ask that private capital take the first loss on loans it makes which turn out to be bad. Ultimately, taxpayer money is there as backup, but it should not be directing investment. We call this institutional arrangement a “bank”. This simple sensible construct is utterly lost on policy makers and the commentariat alike. For banking to do the job it is meant to do (ie. make loans that will be paid back), a bank should be required to keep all loans it makes on its books until maturity. It should be forbidden to participate in any secondary markets, in any way. It should not run a prop trading desk. It should not sell insurance. It should not have a fee-for-service business. It should simply conduct its own credit analysis, make loans, and service them. And in return for providing this public purpose, a bank shall have a reserve account at the Fed.

The crisis over climate data has been met with numerous statements about preserving the “sanctity” or trust in the wisdom of science and scientists. As if our scientists were an improvement over their theological predecessors, or their pragmatic and prostituting peers in politics. But that can hardly be true, if one understands the history of science, or the scientific method and it’s limits, or the behavior of human beings belonging to schools of thought, in history. People are driven by material gain, status, and power, and have significant cognitive biases in favor of those selfish traits, that appear in all aspects of human behavior, not just in politics, commerce, or religion, but also in science. My position has been, along with many, that it certainly appears as though the data says the climate is cooling, along with it’s normal historical ice age cycle. The public does not trust academia, or the scientific community. It does trust particular scientists who are also public intellectuals. THe press likes to trust and advocate science because secular humanism has become today’s religion. In an effort to counter scholastic religion, secular humanists frequently tolerate what it considers acceptable losses. But given that, due to current events, we know most mathematical economics since the second world war is faulty, because the logic behind it was faulty. Because they sought to justify government intervention in the economy by monetary policy: Something Hayek believed was the intellectual’s fascination with their levers and their desire to run tests on society to experiment with their efficacy. And there are numerous other ‘givens’. Given that over nine tenths of research papers contain logic errors that invalidate their conclusions, whether in physical science or social science. Given that it at least appears that the peer review method of publishing articles is becoming invalidated when compared to the more difficult job of writing books that require broader integration of a paper into a network of theory. Given that our universities are rated by input rather than output criteria, and that this bias has material impact on society. Given that it certainly appears that there is a great deal of ’skewing’ in the community, on top of the pervasive errors in the logic of conclusions. Given that academic departments are not materially meritocratic, but political – and radically so. Given that we produce large bodies of research that are faulty and repeatedly proven faulty whenever they aspire to affect the political debate, in order to make it easier to obtain grants. Given that academia does not separate teachers from researchers, and that students see their best teachers evicted from universities, for what appears to be political interests of intrenched parties, and all of us who are educated walk around with this knowledge and experience. It becomes somewhat hard to understand why the public should believe in the myth of scientific ethics. Scientists pursue self interest, just like the rest of us. But there are no checks on that self interest when the testing criteria for that self interest is obscured by all the behaviors above. The rest of us are tested by the market. And it appears that the market is a much better test. Scientisim has replaced theology as a means of influencing policy. But I’m not entirely sure it’s all that much better than arguing about angels on the head of a pin. It certainly seems we should be at least as skeptical of our scientists as we were of our theocrats. And perhaps more so.

Adam Ozimek Curt, The scientific community is a market; a market of ideas. You should not put more stock in individual scientists or “public intellectuals” than in scientific consensus and the market of ideas in which consensus if forged and challenged. The market for ideas is as competitive, self-interested, and as meritocratic as most other free markets- all of which share problems like you cite above.

@Adam “The market for ideas is as competitive, self-interested, and as meritocratic as most other free markets- all of which share problems like you cite above.” That *cannot* be true. The market has no claim to truth, nor is it a weapon of political coercion. It is ultimately and entirely pragmatic, and the means by which we fill each other’s wants by the pursuit of self interest, at the lowest cost, despite the fact that all people seek to game, or circumvent that market whenever possible. Markets exist, and always have. The state has generally, created sufficient stability so that markets can evolve in a fashion in which only the government molests them. And the government molestation is determined as good or bad only by how it redistributes the profits of its molestation: to itself or to the public. A public who must also fail to molest itself by interfering with trade or property, as well as refrain from molestation of the state. But, the moment that ideas are used to influence government policy, they make claims to truth. Our concept of truth is as a method of coercion. In the context of this discussion, which was the public TRUST in the scientific community, trust must imply truth not pragmatism. Otherwise the conversation is meaningless.

The difference between the schools of quantitative and behavioral of economics consists largely in which errors they choose to accept in furthering the utility of their craft. Each of these schools masters a set of conceptual levers with which they seek to solve problems. Or more realistically, the people in the school learn levers, and define their schools by the limits of those levers. They explore their field with levers. They do not necessarily even understand, or agree upon the problem they are solving with those levers. Often, they redefine the problem by the levers at their disposal – a form of unintentional circular reasoning that is rarely evident except in retrospect. A lever is something that they can use to run a test. Testing is the sensory tool of science. But more clearly, methods and their tests are extensions of human perception. Think of them as an insects antennae. They sense whatever they are designed to sense. But it is up to humans to synthesize that new sensory data into a cogent whole. The problem occurs when our specialists become so enamored of their sensors that they bias their perception of the whole, as something designed to be explored by the sensors at their disposal. Like any school of thought, the limits of that school are determined by the methodological scope of it’s levers, what effects they ignore, or what priorities the school’s practitioners give to which effects either considered or ignored. Most often, practitioners become enthralled with the levers they best understand. These ignored effects, and preferred levers, constitute errors. THey must be errors, if they eliminate or ignore information — information that may be either influential to the test, or influential to secondary causes. My favorite response by economists is “… but we don’t consider that economics, so we dont consider this a problem for us to solve.” When in fact, economics is simply the school of measurement of the social sciences, when we choose to make material improvements in life — due to the increasing division of labor and resulting decrease in prices – our method of determining political policy. Economists then ignore the secondary causes of their research: they seek to justify a tool, rather than follow a chain of causation. In the quantitative (abstract) and experiential (experiential and logical) schools of economics, participants either err on the side of understanding human behavior in favor of models that support levers of government intervention, or they err on the side of understanding that there are consequences to policy in the absence of knowledge about secondary causes. The difference in priority between the quantitative and the behavioral, is simply the priority that each gives to it’s methods. They seek to solve the problem from different ends of the human spectrum. For example, the behaviorists did not understand the stickiness of prices and contracts over time, nor the importance of having sufficient money in the system, nor the problem with their concept of freedom, its relation to property, property to calculation and incentive, or the epistemology that property permits humans to employ. The quantiatives did not understand number of very important things, primarily the nature of entrepreneurship, the limits of the DSEM (dynamic stochastic equilibrium model) the nature of what numbers can represent as categories given that factors of production, and even all objects in human experience, have different utility at different times. Nor did they understand how important habitual knowledge, (traditions and habits) are in society, and how quiclky humans forget them when they are not of daily use due to social programs or credit money, inflation, or taxation. Nor did any of them understand that the problem we faced was the nature and dependence of society on human calculation itself, and that accounting practices, government by and laws, as well as the democratic system of government, are effectively laundering useful causality from the pricing system, as well as distorting it through the use of excess credit money. This axis of differences between abstract quantitative and experiential logical is intersected by those people that err on the side of institutional conservatism as a protection against fashion or err on the side of institutional change as a means of altering society by way of its institutions of cooperation and conflict resolution. However, both ends of teh spectrum ignore either the opportunity for change in preference for risk against institutions, or ignore the impact on institutions in favor of experimental change. And these differences are not minor or meaningless. It is the difference in the philosophy of giving people tools by which to better themselves and others, by fulfilling wants, and rewarding those who do so, and the opposite camp, which desires to change the status of humans at the discretion of the political managers who can achieve the power to pull the levers of their choice, and create class conflict over the spoils of productivity gain. The debate rages. However, it appears, at least after cautious study of the history of ideas, that experiments that extend our institutions of calculation are those that are material investments in humanity. And those that are more fashionable, are minor adjustments to class, power, and material randomness as we fitfully pursue life. Our problem is not economics. It’s calculation. Our political system is destroying our ability to calculate – because it’s members do not understand the underlying problem of human calculation, nor the need to modify government to facilitate it. That change, that one change, is the single most important modification we need to make to our institutions. Redistribution becomes calculable under that model. Class warfare becomes unnecessary. And to support Durkhiem, it prevents the state from suppressing freedom and individuality, because it no longer needs to, nor does it need to be a costly behemoth sitting on top of our society, nor can it, because it’s worth would be measurable. That is the methodology that we need: measurement of causality. Prediction is simply a silly chimera to compensate for the lack of information because we launder causality from our political efforts, and to justify the pulling of levers of government through taxes and laws because we lack that measurement and the information it contains. And if my argument appears to favor both sides, yielding confusion rather than clarity, it is because we must continue to compensate for the practical reality of human frailty and foible, while creating institutions that allow us our political expression as a vent for our frustrations, while building a set of institutions that make our society increasingly calculable, comparable, forecastable, perceivable, and thusly one of cooperation in a division of knowledge and labor. But we must not, ever, think that politics is more than a vent for the resolution of conflict between groups. Our society is it’s institutions of calculation. Our fitful political rhetoric an amusement and distraction that rails against our lack of control over them, while at the same time our prosperity entirely dependent upon them. And we must constantly monitor our schools of thought, as well as our own fantasies, so that we are not so enthralled in our pride, that we forget that we are inventing our future, not discovering it, and that each of these methods, schools of though, political systems, is a flashlight in the dark, and our institutions of calculation the power grid that keeps them lit.

A left-leaning blog-squatter on Economist’s View repeatedly makes requests for simplistic reasoning, thereby making his level of understanding, that by which all rhetoric should be judged: a measure which is obviously arbitrary.

All expressions are increasingly abstract evolutions of directly experiential concepts, and perceived simplicity in communication is a function of the commonality of experiences shared by the participants. (Hence the still misunderstood nature of evolution as undirected.) Insight just is the opposite – the communication of unseen patterns – or insight would not be a scarcity and therefore of value, or notice. Quantitatively measured categories require presupposed invariance in the category definition (the variables), while the qualitative nature of human choice, the content of human memory from experience which determines the interpretation of ‘facts’, both serve to undermine such analysis. Our native method of calculation is to use effort, property (objects of utility) and time. Numbers simple help us fine tune our perception and measurement. Next, history and it’s data are correlative assumptions without an underlying theory of causality described by human action. Historical correlation of events is simply an updated variation of the will-of-god. Facts are not facts unless they have a theory and correlation is not a theory. Mathematics is not causal, only narratives are causal. Narratives are only causal if they are expressed as a chain of human actions which are testable by the application of behavioral norms and comprehensible incentives. So correlative political statements attributing policy to resulting economic factors are not necessarily causal, especially given the time delay. Furthermore, external factors that are more influential than policy must be included or eliminated lest we attribute cause to symptom. For example, the much repeated error on this board attributing 90’s success to Clintonian policies rather than the lack of those policies interfering in the speculative growth technology, and the fall of the soviet model, and the rise of the chinese model. Politicians have few short term levers. And they are largely punitive (tax and law) or positive (credit) but they have many long term levers Unfortunately our system encourages them to act for the short term, and so does the ideology of class warfare under the rubric of ‘equality’, given the material differences in human capacity for production in a post-agrarian world. So if this is a forum for political advocacy of a position independent of such understandings, then that’s one thing, but as I understand it, it’s a forum for the discussion of economics, which, as a young and not well understood science, is of material consequence, since economic productivity has replaced religion and moral conformity as the means of compelling one group or another to the bidding of the others by the application of the violence of government through physical, tax, or credit (tax) means. In other words, many people are make assumptions in order to support a confirmation bias, and rely upon a requested simplicity where none exists, and if it does exist, it does so by requiring that events, and causes, be perceptible to the individual, when the entire reason we have economies and institutions and habits and quantitative tools is to extend that perception, which is naturally limited to property and perceived utility.