Anarcho-capitalism dissolving into feudalism?

Economics Economics Questions
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In a paper titled Too Big to Fail, Hidden Risks, and the Fallacy of Large Institutions, Nassim Taleb argues that costs rise disproportianately as the size of an organization rise. He’s basically attacking the idea of economies of scale, and too big to fail.

BTW, if you want to see someone who understands how and where to use statistical analysis, it’s Taleb.

A couple quotes:

Naive optimization may lead us to believe in economies of scale that ignores the stochastic structure that results from an aggregation of entities, their associated vulnerabilities and their costs. While companies get larger through mergers and industries become concentrated, based on the premises of “economies of scale” ([Pareto [10], Taleb [14]). This does not take into account the effects of an increase of risks resulting from both “dependence” and the latent risks that beset big and small economic entities equally. For example, the risk of blowups –in fact, under any form of loss or error aversion, and concave execution costs, gains from an increase in size should show a steady improvement in performance, punctuated with large and more losses, with a severe increase in negative skewness [7],[ 9].

However, under a nonlinear loss function, increased exposure to rare and latent events may have the effect of raising the costs of aggregation while giving the impression of benefits – since the costs will be borne during rare, but large-impact events. This result is general. It holds not just for economic systems, but for biological, industrial and mechanical ones as well.

Basically, as you get bigger errors in prediction and rising execution costs disproportionately increase exposure and reduce the ability to mitigate losses.

The point being this centralization optimization meme is best kept on a small scale, when you try to execute and integrate in this fashion at larger and larger scales, it becomes suboptimal, it increases catastrophic risk.

So, to bring it back, I suspect one could actually analyze current state entities in these terms. Over centralized organizations including states, and overgrown, bloated and inefficient organizations are choking innovation, production, and growth. Until we end up with a social backlash against these centralization memes, things will get worse.

Luckily the feedback signals will necessarily lead to the downfall of all such empirical (as in empire) social institutions. Unluckily, they’re sufficiently large and interdependent that the dissolution/decentralization process may in fact be catastrophic in many places.

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David, so why don’t huge corporations fail miserably all the time? I.e., why do Microsoft and Apple continue growing? Is it because of governmental protectionism (which obviously would not exist under anarchy)?

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I think this is the exact reason.

I think it’s impossible to know how Apple, Microsoft, IBM, etc. would be forced to adapt to a truly anarchic market. They are to some extent categorically different than a Boeing or Northrop Grumman who depend almost exclusively on govt. contracts. But the tech companies do have large govt. contracts, and do to differing extents use patent and copyright law to muscle competitors. I’d guess on principle that the larger the organization the more likely that you find internally decentralized and organic processes (I’m in one such company) OR heavy use of government intervention.

There are ways to build healthy and resilient large organizations, but it involves using internal decentralization, organic processes, local autonomy and responsibility, and to some extent compartmentalization. I’m not an expert on such things, but modern business types do think about and work on these issues. If you’re not the biggest player, it can be hard to survive and thrive and grow. If you are the biggest player, you sometimes need to do some grand scale soul searching and perhaps an internal organizational reboot. Witness IBM’s story through the 1990s.

We’ve also seen selloffs, IBM sold off the laptop business to become Lenova, Motorola spun off the cell phone division as it’s own company, Motorola Mobility.

The problem that the individual faces in this type of business environment, is that there’s a level of chaos and uncertainty. Downsizing, plant closings, re-capitalization, acquisition, etc. can really uproot and dislodge people’s lives. It can be emotionally devastating. This is understandable and reasonable response. The natural buffer is to have the equivalent of a layer of fat for the lean times. This would be savings or equity for the individual. Unfortunately, we have individuals being discouraged from saving, low interest rates, ridiculous housing lending practices, Social Programs, etc.

But we’ve forgotten, and are about to relearn, the lessons of our grandparents and great-grandparents who suffered through the Great Depression. I’ve heard stories about saving tin-foil, and reusing all kinds of junk in odd and interesting ways just to get by. We can do this, but we’ve forgotten these lessons. Someone else, has an interesting metacycle theory about economic climates called Kondratieff Wave theory. I don’t mean to support it here, but in an interview on Capital Account, a proponent made the point, that basically it takes time for the old people who suffered through the last great contraction, to die off, and the lessons they instilled in the first and second generation (savings and thrift) to die off, and now we are the children who didn’t have to save, and we’re going to spend and party our way right into a bust…

Lots of complex pieces in play. But I try to keep focusing back on simple basic fundamental principles about how healthy systems work. Connect feedback properly. Save and protect enough to mitigate the negative black swans, while remaining sufficiently agile to take advantage of the positive ones.

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Another point, biological systems are actually built to handle boom and bust in a robust fashion. Think about how food shortage/abundance works with fat storage in the body. The excess fuel is stored as fat during the abundant phase, and then that fat is released back and consumed as fuel by the body during shortage phases. The problem is we should be underconsuming and thus saving during boom times and then overconsuming the excess that was saved during the bust times… If we can figure out how to sustainably build that type of natural behavior into our emergent social group norms, then such a society would end up dominating the global economy. But what we cannot be doing, (and government is encouraging) is reinforcing the fragile pattern of overconsuming from the start of the boom right through to the bust. They’re doing it again, trying to use consumption measures as measures of economic health and recovery. If they’d focus on savings interest rates rising to encourage it, and the liquidation and revaluation of bad assets, we’d see the consumption recover as a symptom of 1) increased wealth accumulation, 2) correction of overvalued asset prices (on paper), and 3) increased investment and production.

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All theories of the market I’m aware of assume that actors within the market are free and equal. If you know of another that does not I’d be interested to see it.

It’s pretty straight forward, though. If I don’t recognize you as an individual capable of negotiation and trade, but some type of sub species or savage, market relations between us will not be possible. If I believe I am justified in using violence against you to get out of you what I want and have the ability and will to do it I don’t see how you can call that a form of market relations.

For historical examples see serfdom, chattel slavery, colonialism, present day relations between states and citizens. Seems fairly uncontroversial to me.

You don’t have to link to reification, I’m aware of it. I know people on here have a tendency to link to wikipedia articles of terms they’re proud of knowing, but really it’s not necessary.

How exactly am I reifying social relations?

Yes, walking as we understand it would not exist. People may perform the activity we currently call walking, but it would not be understood as walking and therefore it would not exist.

You’re still not grasping the distinction, though. Voluntariness and aggression are not physical acts, they are a class of normative interpretation of an act. So you need the concept of an act AND the concept distinguishing between the types of that act based upon some standard. Voluntariness and aggression are not aspects that are inherent to an act. They are a judgement of the act.

No it doesn’t imply that there’s an objectively correct meaning for everything. How does that follow?

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I’m not assuming that they fall from the sky. An institutional arrangement does not necessarily mean a formal institutional mechanism, like a constitution. It can mean, as you say below a “form of understanding” which is what I meant when I said institutional arrangement above. Perhaps, institutional structure would have been less confusing.

That’s basically what I meant. I think we’re in agreement here.

No.

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heres a roman history podcast featuring the early beginnings of feudalism at least the beginning of serfdom . http://traffic.libsyn.com/historyofrome/127-_Commanding_The_Economy.mp3