Co-ordination And Orchestration: The New Role For Management In The Digital Age.

/0 Comments/in , /by

Is there a role for managers in the fast response, rapid change, constant flux VUCA world of business in the digital era? Yes, and they’re more important than ever.

Entrepreneurs invented management for the same reason they pursue innovation of all kinds: to address a need. In the nineteenth century, entrepreneurs created a brand-new form of customer capitalism. They introduced railroad systems, telegraphic communications, mass production and mass distribution, and created huge factories and global supply chains for the first time. The orchestration of these systems to assemble the right combination of inputs and bring them together at the right time, organize the new high speed manufacturing capacity, and to get the output distributed to warehouses, shops, and homes across the newly expanding geography of America represented new levels of complexity that no-one had ever before encountered.

It was a problem to be solved. And so, the entrepreneurs – Rockefeller, Vanderbilt, Carnegie, Roebuck, and many, many more – invented management structures and management processes to solve it. Their management systems were world-changing innovations just as much as their new products and services were. Alfred Chandler, the foremost business historian of the era, called it a management revolution.

The companies Chandler chronicled were market-driven and customer centric. Rockefeller’s Standard Oil brough cheap illumination to America’s new homes, extending days and improving both productivity and the quality of family life. Roebuck’s Sears, Roebuck & Co catalog brought a vast, unprecedented selection of items to those same homes much the same as amazon does today (except that Sears, Roebuck extended credit – “Send no money until delivery!”)

These management models extended into the twentieth century, without much structural change, but the transition from entrepreneurial business owners to salaried professional executives brought a lot of deterioration in the ways in which the models were operated. The new breed of executives turned inwards, examining the efficiency of internal processes more than the effectiveness in the delivery of customer experiences. Cost reduction through process management became the holy grail.

In a self-defeating manner, the executives built bureaucracies to police the internal processes, in layers of management, new compliance functions in legal, finance and HR departments, and a generalized move towards the sclerosis of command-and-control and away from the free-flowing delivery of customer value.

At the beginning of the 21st century, businesses are discovering that the command-and-control approach of bureaucratic management can’t function in the fast-moving innovation environment of the digital age. The new approach is the Adaptive Entrepreneurial Value Model. Value is the singular focus: that’s value for customers, not to be confused with or intertwined with value for stakeholders or shareholders. The value customers experience is an outcome of the corporation’s singular focus on customers. Entrepreneurial means business conducted with an entrepreneurial orientation, always aiming at improving customers lives, always sensitive to the condition that they’re looking for increased value tomorrow even though they might feel satisfied today, and always exploring and experimenting in the pursuit of innovation. 

And adaptive means willing and eager to change in response to new data and new information, about customer preferences, competition, business conditions, regulation, new business partner opportunities, or any and all elements of change that signal an opening for profitable adjustment.

The era of adaptiveness foretells the end of the era of bureaucratic management hierarchies – but not of management per se. The command-and-control format for management doesn’t fit the high-response world of adaptation to new market data, nor do tools like 5-year strategic plans and annual operating plans and budgets. But that does not mean that all firms should radically decentralize and eliminate management in favor of self-organizing agile teams and A.I algorithms. Experimental trials of such approaches, such as holocracy at Zappos and the “bossless” organization at Valve, have ended badly.

In fact, managers are more important than ever – just not in the old command and control way. Rather they are now coordinators and orchestrators, enabling adaptiveness rather than impeding it. This kind of management is a tricky expertise to get right – but it’s vital, and it offers great opportunities to those who can excel in the role.

Peter Klein, who is Professor of Entrepreneurship, and Chair of the Department of Entrepreneurship and Corporate Innovation at Baylor University, is the co-author of Why Managers Matter, a management manifesto that bucks some of the current trendy thinking about lean, flat, leaderless organizations. 

A well-functioning management process can change internal production processes, teams and resource allocations as needed in response to external changes in customer demand and marketplace conditions. Professor Klein’s advice is to distinguish between circumstances that call for Mark 1 management (exercising managerial authority and giving instructions) or Mark 2 management (indirect guidance through organizational design).

When there is a high degree of interdependence between people, teams, and tasks, such that it is critical that tasks are highly coordinated, completed at the same time and combined in a highly specific fashion, then management intervention is required, and it will include Mark 1 elements. When production is more modular, when tasks and projects can be completed interdependently, then Mark 2 management can be exercised through a decentralized, flat, and culturally aligned organization. (Professor Klein cited the example of the type of higher education institution where he works; all the professors can design and teach their classes, do their research, and publish their papers and books with a high degree of autonomy.)

He points out, through relevant case studies, that a flexible corporate management structure can be better at adaptation than, for example, a network of independent contractors and suppliers that would be challenged to orchestrate responsive changes to an external change, since each would have a different experience and process it through a different cultural orientation. They wouldn’t co-ordinate as well or as quickly as internally managed teams.

So, management isn’t dead in the digital age. In fact, it’s returning to the co-ordination and orchestration role that Rockefeller and Carnegie and their compatriots originally intended for it – but working with a different set of production machinery.

The Long Night Of Mathematicized Economics Is Over.

/0 Comments/in , /by

Sometime in the 19th century, economists got the idea that mathematics was an appropriate language for economics. This was a strange turn, since economics is the science of how human beings, pursuing their own desires and preferences, find ways to exchange with other human beings to produce prosperity. Finding ways to exchange involves creativity, ideation, innovation, forming companies, providing services, importing and exporting – activities and processes that don’t lend themselves to algebraic symbols and mathematical equations. 

Mathematics is inappropriate for economics, yet it has become dominant. Why? Precisely because it removed the human component, the creativity, the subjectivism. The new practitioners didn’t want that mode. They wanted cold, hard calculation. They wanted to be seen as “real scientists”, like physicists and engineers, dealing in scientific precision and not the uncertainty and softness that, in their view, characterized the analytics of social science and social interaction. Human-ness is so messy. Math is clean and sterile.

But the hold of mathematics on economics is breaking. Its inappropriateness as a tool of economic understanding is widely recognized, and new alternatives are becoming well established.

The Illusion Of Knowledge

In an essay entitled The Illusion Of Knowledge, Howard Marks, co-founder of Oaktree Capital Management, points out that the mathematical models of economics can’t predict and can’t guide expectations. There are too many variables and the most important variables are human and therefore unpredictable in their reaction to changing circumstances. He asks

Can a model replicate reality? Can it describe the millions of participants and their interactions? Are the processes it pretends to model dependable? Can the processes be reduced to mathematics? Can mathematics capture the qualitative nuances of people and their behavior? Can a model anticipate changes in consumer preferences, changes in the behavior of business, and participants’ reaction to innovation? In other words, can we trust his output?

Howard Marks, The Illusion Of Knowledge

His answer is no. 

Economics Of Verbs Not Nouns

W. Brian Arthur is another prestigious economist who rejects mathematical modeling for his science. In a paper entitled Economics In Nouns And Verbs, he observes:

The economy is very much a creation of humans and a very complicated one, so given the liberty of human choices and the vagaries of people’s actions, it is not obvious why algebraic logic and calculus should apply.

W. Brian Arthur Economics In Nouns And Verbs.

The core problem, as he articulates it, is that the algebraic symbols of econometric models exclusively represent nouns:

Economics deals with prices, quantities produced, consumption, rates of interest, rates of exchange, rates of inflation, unemployment levels, trade surpluses, GDP, financial assets, Gini coefficients. These are all nouns. In fact, they are all quantifiable nouns— amounts of things, levels of things, rates of things. Economics as it is formally expressed is about amounts and levels and rates, and little else.

Ibid.

The language of mathematics does not allow actions. It can’t answer questions about how an economy or a firm or a development project emerges in the first place, how innovation works, how economic development takes place, or how structural change happens. Anything in the economy that deals with adjustment— whether it is adaptation, innovation, structural change, or history itself—falls through the algebraic mathematics sieve.

Arthur calls for a language of expression in economics that can describe these actions, changes, and innovations, and thereby develop some resemblance to and understanding of the real world.

Language and Austrian economics

Ahmed Elsamadisi, CEO of the analytical software company narrator.ai says that there is one data model that can cope with all these variables: it’s called language. Data has a role to play, but it’s subsidiary to language. Elsamadisi talks about “having a conversation with data” – it’s human beings using language to ask the right questions who are able to find the most value in historical information.

The economics that Brian Arthur is looking for already exists, but most economists ignore it. The unfortunately-named Austrian economics – its first scholars were in Vienna but the research now is global – uses language and deductive logic from first principles to develop its theories. It has no models. 

As economist Per Bylund writes in How To Think About the Economy, economics Is about people and specifically about what they do to meet their own goals. People’s wants are unlimited but their means are not, so they economize, choosing from scarce means to achieve as much as they can. Economics is life: spontaneously and adaptively doing what we can with the resources available to us. As a consequence, the economy Is unplanned order, always in flux. It can’t be modeled.

Subjective Quantification

Professors Peter Lewin and Nicolas Cachanosky propose a novel combination of thought processes to integrate words and numbers in economic calculation. Their term is subjective quantification. Human beings have the unique ability to turn subjective ideas into numbers that express the idea. We find a particular product or service that we feel has potential value to us, and we turn that feeling into a number via our willingness to pay a monetary price to acquire it. That’s turning the subjective – our idea of value – into the objective – the number of dollars we’re willing to pay. Generally, this is the process of economic calculation. Firms estimate revenues they may receive in the future from customers who perform this value calculus. The firm uses its own estimate – a subjective one, by definition – to make plans for investment and business expenditures.

Models promise prediction and guidance on economic variables. It’s an illusion, as Howard Marks puts it.

With the new resurgence of Austrian economics, and its modern expression in what Brian Arthur calls complexity economics (an economics of verbs not nouns), the dominance of mathematics in economics is coming to an end.

No-One Understands How Systems Work.

/0 Comments/in , /by

You may have been listening to economists debating and arguing about the state of the economy and the future of inflation. Are we in a recession or not? What will the economy look like next year? What causes inflation? Will the rate of inflation increase or decrease? What can be done to alter the future direction of change?

There is no shortage of opinions, but a total lack of certainty, of confidence, or even of sound theory.

You probably find the same phenomenon when engaged in discussions about business – about how firms can do a better job of creating customer value, to grow and succeed. How can they achieve a rise in stock price? What are the most critical constraints? What’s the best process for driving innovation? What’s the best way to manage and incentivize employees and to build a strong culture? Those are the kinds of words and phrases business consultants and business school professors use – your own peer conversations are probably more to do with increasing sales, or lead generation or your P&L, or whether all the ingredients you need will be delivered. 

But the challenge, in all these cases is the same. No-one knows anymore how these systems actually work. We can extend the list to climate as a system – some scientists claim they know how it works and can forecast the future, and another set views it as unpredictable and unmanageable. 

We saw during the so-called pandemic that virologists and infectious disease experts and pandemic modelers got their predictions – and their policies – hopelessly wrong, and it cost millions of lives and billions if not trillions of lost economic production. We can see the might modeler Ph.D.’s at the Federal Reserve make the same hubristic mistakes with their models of money supply, inflation, employment, and economic growth. The only thing they’ve ever been is wrong.

In fact, there’s a whole new science of not understanding systems which is called complexity theory, which overlaps closely with chaos theory. It says the following: A system is a collection of elements, components, parts, pieces, or, generally, agents. In an economic system, the agents might include individuals, families, and firms. There are additional elements like processes, government and institutions, norms, traditions, and a whole lot more. These elements and agents interact with each other and with inputs and outputs. There is further interaction after feedback loops establish themselves – agents react to outcomes and results they didn’t expect or anticipate. There are so many variables – individual decisions and preferences, group behaviors, trends, technological changes, money supply changes, etc, etc – that the interaction is described as complex, which means beyond understanding, unpredictable, and non-linear (it goes off in directions and at speeds that no-one expects).

Complexity is science throwing up its hands and saying, we don’t understand these systems anymore, can’t predict them, can’t control them, and can’t manage them. We don’t even have any ideas on how to do so.

There are many fancy new words that come out of this science. One, for example, is emergence. Systems have emergent properties, meaning s*** happens that we can’t account for and couldn’t even imagine in advance. Emergence is a kind of magic.

Another new term is self-organization, which means that the system will evolve and develop as it likes without any input -or despite any input – from the scientists.

Don’t worry, there are lots of government grants being given for the study of complexity, lots of papers and journals, lots of conferences, and lots of sabbaticals being taken to contemplate future studies and grant applications. There is money in complexity.

What’s the alternative? Pragmatism.

When the system (of life, of business, of health, of the economy) is complex to the point of incomprehension and unpredictability, there is only one action: do something and see if it works or it doesn’t work. In business, it takes the form of what is called today A/B testing. Try two different actions (without any prediction or bias or even desire as to which outcome will result) and choose one that works, i.e. moves in the direction you feel is better. Then do another test and another and another until there’s a string of results. Expand the actions so long as they keep working. Start a small store and keep expanding it unit by unit until there’s a big store. Be prepared for things to change without notice. Go back to square one if they do. 

There are fancy terms for this too. Economists call it entrepreneurship. Constantly trying and re-trying, combining and recombining, testing and re-testing. If a promising pattern is established, pursue it and reproduce it, but only so long as the pattern holds. Drop it as soon as it becomes erratic. Start another one. Creativity is the required skill set, and the whole point about creativity is unpredictability. 

Creative entrepreneurship doesn’t try to study complexity. Entrepreneurs face it every day and they take action rather than studying it. 

The Road To Stagnation: Why Government Is The Enemy Of Economic Productivity.

/0 Comments/in /by

The federal government is planning to hire an additional 87,000 IRS agents. Some of them may be armed. This is not the action of a friend or partner. It is central to government’s anti-economic behavior. But now that behavior has shifted to beast mode.

Federal income taxation of companies and individuals is an act of extraction from the economy – the seizure of what has been produced. Government produces nothing – all production occurs outside government. Say’s law stipulates that we must produce first in order to be able to consume. This law does not apply to government, who must extract and confiscate first in order to be able to spend. If they spend some of the confiscated funds on production by others, such as arms producers and vaccine manufacturers, they can be counted on to be inefficient, and they don’t subject themselves to the trade-off analysis of alternative and better uses of those funds.

Taxation, of course, is not the only enemy action producers must face. Government regulation is the other major imposition on production. We’ve reported here on the one million Federal regulations the typical large firm faces. These regulations are designed both to suppress activity and to divert spending from productive to non-productive channels. Compliance requires an administrative staff, lawyers, form-filling, and reporting. Regulations often require specific investments by firms – software to interface with government systems, special safety installations and equipment, government-required training regimens, and more inefficient processes. And today, there’s the added imposition of diversity requirements in employment that replace meritocratic hiring and slow down productivity and reduce functionality.

Federal agencies are designed to impede and impose upon productive firms, and their bureaucrats enjoy – and are rewarded for – doing so. That’s how incentive systems work. If a bureaucrat is to be promoted in the SEC or OSHA or FDA or IRS, they must demonstrate the work output of large numbers of successful prosecutions. They must haul in revenues from fines or settlements. Those who get to the top are not the ones that hold back. 

The third army of the enemy assault on economic achievement is the Federal Reserve. By intervening to distort market interest rates, this army creates hard-to-manage financial uncertainty for business firms. Private investments in future asset-building must include a guess – that’s impossible to get right – about the whims of the Federal Reserve’s committees and Ph.D.’s. The Federal Reserve also regulates and controls all other banks, thereby placing their heavy hand on the scale of financing of business undertakings – for example, their location, the qualifications of their recipients, and their preferred projects.

And by destroying the value of the currency – the US dollar has lost more than 96% of its purchasing power since 1913 when the Federal Reserve was formed – the Fed forces pricing, squeezes profits, and removes economic incentives for growth and innovation. There’s less incentive to earn devalued dollars. 

The only way for firms to stay at least half a step ahead of the government bureaucrats is to innovate, to come up with better and better customer services that generate the reward of the marketplace, resulting in growing revenues and profits that can be used to pay off the confiscatory taxes. Happily, America’s innovative firms have been reasonably successful. But, more and more, innovative action is going to be diverted in the direction of new ways to file tax forms, or to do accounting, or to design a multi-national organization that avoids excessive US taxes. Corporate innovation activity will gradually be drained off (which the government loves because then they can use it as an excuse to increase the budget of the Pentagon and NASA and the NSF and other government R&D grant givers).

Eventually, firms will give in. The enemy will win. It’s unlikely that all firms will become publicly owned, but they’ll just sidle up closer and closer to the government and ask, “Just tell us what to do and we’ll do it.” There’s plenty of evidence that that’s already happening. Microsoft and Apple bid on massive government defense contracts. Digital companies execute the surveillance and suppression of open speech that governments prefer. Banks make the loans that government wants them to make. Companies do what it takes to sell satellites and pharmaceuticals and delivery services to the government. They don’t want to be excluded or to miss out.

Why is government the sworn enemy of business and business firms and their productivity and service to customers? It’s a matter of control. Government must be able to exert unchallenged control over the citizenry, and the innovation and service ethic of business threatens to rival that. If customers are loyal to service provider businesses, they might recognize the superior alternatives on offer. Government can’t allow that. Therefore they are committed to outnumbering and outspending any opposition. The federal employee roll of over 2.8 million civilian workers easily takes care of the outnumbering part. The array of lawyers, inspectors, and compliance officers in government can easily overwhelm any private sector firm.

And government expenditures (($6.8 trillion in 2021) easily dwarfs any private sector firm’s spending capacity.

When all this personnel and spending power are arrayed against individual firms, there’s no contest. The firm must comply, hand over the sums that the government says they must cede, hire people and allocate time to engage with all the regulations that they face, and find ways to abandon the activities of which the government disapproves, while finding new ways to innovate to try to get ahead of the inspectors and agents. It’s a race to stagnation.

A Million Regulations: The Narcissism Of Government.

/0 Comments/in /by

Professor Deirdre McCloskey, in a recent book, tells us that

The US federal government has in place over a million regulations. One million. The Democrats say, “Add more bureaucrats….” The Republicans say, “Add more police….”

Beyond Positivism, Behaviorism, And Neoinstitutionalism In Economics; Deirdre Nansen McCloskey; The University Of Chicago Press; 2022

The Code Of Federal Regulations is 220 volumes. The hubris of a government that can concoct so many ways to control us is quite striking. They have regulations about the food we can eat, and the packages it comes in, and the ingredients listed on those packages. There are regulations to control the clothes we wear, the fabrics from which they are made and the shops from which we buy them. They control the cars we drive and the oil and gasoline we put in them and the tires we put on them. They control the medicines we take and how we access those medicines. They control the glass in the windows through which we look at the world, not to mention all the other materials with which we build our houses, and the tradespeople and practitioners of crafts whom we hire. They control the media from which we gather information. The Federal Register Index has a span from Actuarial Services to Workers Compensation Programs. There is not a single detailed aspect of daily economic life for which our hubristic government bureaucrats do not have a regulation or a rule.

The cost of this regulation is enormous, and about to become overwhelming. In a 2016 study, the US Chamber of Commerce Foundation estimated the direct cost of government regulation at $1.9 trillion, about 10% of that year’s GDP. (And, since GDP includes government spending, this is most certainly an under-estimation of the burden on private enterprise.)

Possibly more important than the direct cost is the economic waste. All regulations are an extraction from the economy. They require the allocation of administrative personnel and time to the useless tasks of compliance – filling in the forms, filing the completed forms, gathering and tracking the data the government requires for reporting, and informing others in the organization what they need to do to ensure the firm remains in compliance. These people could all be doing something productive instead. Consequently, production that could take place is excluded or neglected, and the economy is smaller and poorer and slower-growing.

And this definition of waste does not even include the wasted dollars paid in fees, and in fines for late filing, inaccuracy and other infractions.

Why does government impose this idiotic waste? For example, as an alternative, government could just impose some kind of a flat tax on GDP or gross revenues from sales, but not go to the trouble of designing, publishing, imposing, enforcing and administering their idiotic rules. Such a tax could sustain government at scale and pay for plenty of bureaucrats’ jobs, pensions and healthcare plans, without all the work.

It’s clear, then, that they enjoy the control.

It makes bureaucrats feel powerful. Their decisions are final. They dictate how the economy performs. They dictate whether or not businesses can grow. They dictate how cars are built and how cows are milked. They have ultimate power. These seedy, weedy mediocrities probably couldn’t qualify for a real job in an honest company that applies meritocratic measures to reward those who add value and discard those who don’t. Yet they are in total control. What could be more admirable? What could be more relevant to elevating themselves above the masses? Self-serving by making the regulations more complex and more all-encompassing is a natural behavior for them, and so obviously good for the economy and the country. The country needs controlling.

Over-regulation destroys much. It especially destroys the discovery and serendipity that characterizes the entrepreneurial economic activity that brings us innovation and growth.

And the damage is not restricted to the immediate effect of regulation. The damage compounds over time, as Dr. Per Bylund of Oklahoma State University emphasizes. Every regulation distorts economic activity, and shifts the interaction of supply and demand, and the interactions of entrepreneurs and customers, for as long as it is in place, multiplicatively compounding the damaging effect as each over-regulated period succeeds the previous over-regulated period.

Rent control is an easy example to think through. Rent control in a city immediately changes the economic calculation of an investor who might otherwise plan to build rental housing or invest in upgrades to an existing investment. The net present value of future cash flows changes and so the return on investment calculation changes. The investor may decide to invest in rental housing in another city where rent control does not apply, thereby permanently changing the relative economic relationship between the two cities in terms of the quality of life of citizens, and relative attractiveness to employers. Or the investor may decide to invest in an entirely different line of economic activity, thereby distorting the relationships between the rental housing sector and other sectors.

When the investor decides not to invest in the housing stock of the rent-controlled city, that housing stock will decline in relative and absolute quality. Renters may choose housing outside the rent control zone if its quality is better or more stable. Those renters may have to commute further. The markets for transportation and cars and gasoline are thus distorted. Perhaps the commuter spends less time with family as a result of the longer commute, and the kids suffer in academic achievement while the quality of life of the commuter declines because of frustration and boredom. Spending more on commuting may result in spending less on entertainment or clothing. In all cases, the demand functions and preferences of individuals are distorted with ripple effects through the local economy. These ripple effects can become tsunamis as the regulatory damage compounds over time: cities become wastelands, wastelands become criminalized, criminalization becomes social breakdown, social breakdown becomes violence.

The narcissism of government is that they don’t care one iota about these economic distortions. They care about being seen as policy designers, as engaged in that they call action, doing something. They care about appearance, not results or outcomes. When the outcomes we describe come about (as they have in many cities across the USA), politicians engage in narcissistic denial. It can’t be us. It can’t be our fault. Someone or something else must be to blame. Just look at us, we are so committed to doing the right thing.

How we wish we could expel the narcissists from government.

Government Economics Versus People Economics

/0 Comments/in /by

Economics is beautiful. It’s the science of prosperity – how every individual in an economy can find their way to prosperity by collaborating and exchanging with other like-minded individuals for mutual benefit. The essences of economics include individualism – people helping people; betterment – everyone always seeking a higher level of well-being for themselves and for others; value – the feeling experienced when that higher level of well-being is attained; creativity – the new, never-tried-before ideas that humans are capable of generating; learning – no-one knows, controls or can predict the future, but new knowledge is continuously generated and shared through experience. Learning, creativity, the search for betterment and the pursuit of new value make economics an exciting, dynamic discovery journey of innovation and new horizons. 

We might call this form of economics “People’s Economics”. It’s the science of making people’s lives better. In his book Factfulness, Hans Rosling lists 16 Bad things Decreasing (including children dying, hunger, and plane crash deaths) and 16 Good Things Increasing (including literacy, access to electricity and safe water, and immunization). His point is that the individual drive for betterment and the search for better value – i.e., the science of economics – are the source code for global progress and human thriving. The dynamics behind this progress include experimentation, collaboration, feedback loops, and entrepreneurship – what complexity scientists call “explore and expand”: keep randomly trying things that might work, and expand resource allocation to those that do.

There’s another version of economics that we’re all more used to and more exposed to. That’s government economics. It’s the opposite of the science of prosperity for individuals or the individually-initiated drive for betterment and the search for value. The focus of this form of economics is not individual people and their personal pursuit of well-being. It focuses more on aggregates – meaningless contrived statistical roll-ups such as GDP. Individual people are meaningless in GDP. It focuses on government policy: the government’s fetish for control over the individual in economic terms knows no bounds. Government has explicit and detailed rules to control everything that is produced and everything that is used or consumed. There are government rules about the size of your breakfast cereal package and the ingredients listed on it. There are government controls that govern the car you drive and the airline tickets you buy and every element of your healthcare. And the government’s second major interest in the economy, after controlling it with regulations, lies in extraction: taking, via taxes, tariffs, and fees, the fruits of the economic activity of private producers that remain even after regulation has strangled productive possibilities.

Why does government economics dominate the economic conversation? First, the government employs most economists and subsidizes their research. Most Ph.D. economists are employed by the Federal Reserve and government departments either directly, or as paid consultants and advisors. Most economic research and the papers published by universities and think tanks are subsidized or directly paid for by government grants of various kinds. Economists are paid to do government economics. And secondly, of course, government controls the media through which we get most of our economics information, through the statistics it publishes and how these statistics are covered by mainstream media. All mainstream paid media require government statistics to report on and debate, and government economic policy to publicize and weigh (don’t worry, it’s all good, they tell us). They can’t question the existence of the Federal Reserve when Federal Reserve policy and actions provide them with so much airtime content and therefore so many advertising dollars.

Any of us can switch to people economics. It’s simply a matter of reframing. Frame the economic knowledge you have and the news that comes your way through the lens of individual end-users and individual producers, both people-as-producers and firms-as-producers. For example, take the question of whether or not there is an economic recession. The government statistics say no, not yet. Some of the commentators on “macro” economics believe we are in a recession. To decide the question, look through the lens of you. Do you have a job? Does that generate cash flow for you? Are you consuming? Are you consuming less or more? Is your mortgage rate locked in, or floating? These and other personal questions determine your economic condition and economic outlook, not the statistically-contrived movements of some meaningless aggregates.

You can use the same personal assessment for price inflation. Are things you buy more expensive than they were a year ago or six months ago? All of them, or some of them? Are you able to cut back on some expenditures that don’t seem as necessary as they once did? Can you make substitutions? Can you adjust? The level of price inflation that’s painted as a “national” level is a government number. It signifies nothing about your personal inflation, or your family’s. Your inflation is not determined by the national prices of eggs or gas or any other single item, but by the monthly or weekly dollar expenditures for household expenses. Some of these are fixed and some are variable and you manage accordingly. You economize. You calculate and recalculate and re-evaluate. 

Similarly, on the production side of the economic equation, People’s Economics applies at the individual level. The driver of economic production, innovation, and growth is entrepreneurship. This is a function that any individual can perform. Trading labor hours for a wage is entrepreneurial if the combination of revenue and psychic reward is greater than the individual’s perceived cost of doing the job. Working for a corporation can be entrepreneurial so long as the work is done in a value creation mode as opposed to a bureaucratic mode; bureaucracy is non-productive. Entrepreneurship can be pursued by any business owner, co-owner, or investor, so long as the focus is on producing customer value (as opposed, for example, to maximizing shareholder value).

There are a few economists who recognize people economics. Professor Deirdre McCloskey of the University of Chicago calls it humanomics, and she’s campaigning for an end to the kind of false measurement that characterizes GDP and the centralized control of people that is the driver of government economic policy. She favors individual creativity and discovery as the drivers of economic growth. She calls for liberty from policy.

The entire Austrian school of economics, of course, is the antidote to government economics, built on the consumer as the originator of value – discovering what to want – and the entrepreneur as the producer of value – meeting the consumer’s newly discovered wants with innovation.

The economics profession has a lot to answer for. Mostly, it should cease to debase itself and stop selling itself to governments. We can then rediscover the beautiful science of prosperity.