Monday, November 22, 2010

The Short Term Myopia of the United States

Working in urban neighborhoods can be a very disheartening experience. There are so many problems that at times they can seem overwhelming.

One of the most discouraging problems that one runs into over and over again is the myopia that exists within some of these communities, a myopia that results in people making decisions as if there is no tomorrow.

Often these decisions can be captured within the context of game theory, specifically the “Prisoner’s Dilemma” game. The solution to a one-shot, simultaneous Prisoner’s Dilemma is for all players to default to the action that results in the worst decision for each player.

Researchers will explain the deterioration of housing within certain neighborhoods in terms of this kind of Prisoner’s Dilemma game. No one maintains, or “keeps up” their house because that is not the best decision given how they expect everyone else to act. And, there is no communication between actors so that people fail to “co-operate.”

People within the United States, as a whole, have become very myopic. This myopia grew in the latter part of the 20th century and stands behind many of the problems we face today. We constantly read about two areas that have produced damaging results in the United States, yet, as with most one-shot, simultaneous Prisoner’s Dilemma games, most are barely aware of the role that this myopia plays. I would contend that these two major areas have to do with employment and the environment.

The United States has such a short-run view of employment that its governments throw billions of dollars into efforts to put people to work “right now” or to put people back to work “right now”. The emphasis on achieving “full employment” in the United States going back into the 1930s and 1940s has tended to get people employed as early in their lives as possible and to keep them in their same jobs throughout their working careers.

The consequence of this emphasis is that unemployment and underemployment have trended upwards in the latter half of the last century. Now, roughly one out of every ten individuals of working age are unemployed and one out of every four is underemployed.

The current solutions for reducing this unemployment and underemployment just advise “more of the same.” That is, more fiscal stimulus and printing more money.

These are just myopic attempts at resolving employment problems, myopic attempts that result from the myopic behavior of the politicians. After-all they have to get re-elected every two years…or every four years. So they must continue to pump up the economy.

But, this behavior just exacerbates the problem. And, it creates massive amounts of debt or money for the economy to absorb.

It has taken us a long time to get where we are and it will take a long time to get us out of this mind-set and out of this situation. A lot of what needs to be done relates to education and to everything that surrounds education…parents and teachers…and society itself.

Thomas Friedman has written several columns in the New York Times about the situation that exists in the education front in the United States and how it not only impacts us internally but how it impacts of relative to other nations. (His latest can be found here:

Friedman reports of a speech from the secretary of education Arne Duncan: “One-quarter of U. S. high school students drop out or fail to graduate on time. Almost one million students leave our schools for the streets each year.” And Duncan comments on a report from a group of retired generals: “75% of young Americans, between the ages of 17 to 24, are unable to enlist in the military today because they have failed to graduate from high school, have a criminal record, or are physically unfit.”

America’s youth are now tied for ninth in the world in college attainment.

How are these young people going to fill jobs in companies that must face competitors that draw from a better prepared and better educated body of potential employees? How are companies going to develop and train people throughout their careers that do not have the appropriate base of skills? And, if these people do not seem to be coming along the pipeline, why shouldn’t the companies “outsource” to other countries where they have the educated workforce and will even have a more prepared workforce in the future?

Continual efforts to re-stimulate the economy and put under-employed people back into the jobs they formerly held is no solution to either the employment problem or the happiness of the worker. Unfortunately, the solution is a longer-run solution. For another look at the situation see “The Baseline Scenario”[BULK]%20%20The%20Baseline%20Scenario.EML?Cmd=open.

And, the same myopia applies to treatment of the environment and the efforts to develop sustainable business practices. Businesses are forced to focus just on the near-term, on their ability to grow and produce continually increasing profits. And, in doing so these businesses “mortgage” the future. Again, we have another one-shot, simultaneous Prisoner’s Dilemma game where most of the players default to the actions that will produce the worst results for all.

A great deal of the effort to produce a “green” outcome also, in my mind, tends to produce short-term fixes and look as if they just add costs to the accounting for the firm.

Again, education is crucial in environmental understanding. We are not talking here about knowing what the ecological problems are. We are talking about understanding what decisions are available and the externalities and network effects that surround the decisions we make.

But, as with the education, the consequences of our actions extend over many years and our decisions must take this future into account.

It is my experience that the decisions and actions surrounding these longer term decisions produce better results over time and also produce better managements because they take more factors into the making of decisions and the taking of actions.

In both of these cases, the emphasis on the “short-run” end up hurting individuals as well as hurting the economy. We get into situations like the one surrounding the resolution of the government debt problem. The argument is made that we need to spend more creating more debt so as to put people back to work. Yet, the additional deficits just create a “debt crisis” that interferes with putting people back to work.

Speeded up spending on solutions to ecological problems is a top-down approach that seems to substitute for companies changing their own behavior and decision-making processes.

Short-run America is losing out on the longer-term competitive battle. As Friedman continually reminds us, we continue to slide in all the measures of what makes a modern economy more competitive and live-able. The chances for becoming more competitive? Highly unlikely given the myopic behavior of our politicians.

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