"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.
We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues"

( JM Keynes, "Economic Possibilities for our Granchildren" 1930 )

Sunday, March 6, 2011

Garbage Out , Please

"Garbage In, Garbage Out" (GIGO) is a phrase from the field of computer science commonly used to describe failures in human decision making due to faulty, incomplete, or imprecise data. (Wikipedia). However, the application of GIGO to human behaviour overlooks the fact that for humans the “GI” part depends not only on “real” data but (mainly) on how reality is perceived. Moreover, we are able to adopt “GO” attitudes even it is evident that the hard data support a different conclusion.

Lets take for example the attitude toward a main social issue as “Income Distribution”: The following graph reveals one of the result of a survey about the attitude toward inequality in US. America is just a mirror, an example for other countries.

Source (http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph) from “Building a Better America – One Wealth Quintile at a Time by Michael I. Norton Dan Ariely Harvard Business School Duke University)

The results are very interesting: First, Americans perceive that social inequalities in their country are less acute than really are that “…..First, respondents dramatically underestimated the current level of wealth inequality” . I would say that “underestimated” is an underestimation.

First of all, wealth is regarded as the Direct command over money, but does not include indirect command. For example, under the modern shareholder structure , whoever holds just of a small portion out of the shares of a company is practically the one who holds the command over the overall company´s assets, much above his "real" holdings. That mechanism is denominated as the “OPM” (“Others People Money”) principle. And since Capital accumulation is not just a matter of bank account but of command, for practical matters the pecuniary figure becomes an underestimation of the real power behind Wealth.

In addition , the “Wealth” definition is somewhat misleading. According to the article “Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person's net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages.”

The problem with the above "Wealth" definition is that it includes personal house, which is not a typical “asset” but a sort of consumption item which is financed over a long period and does involve a command over future income streams ( as a typical financial asset should). Thus if we exclude housing from “Wealth”, we get an even worst picture of inequality as the lion share of the lower classes wealth is mainly their personal home.

The second conlusion “Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution…”

In clear contrast to the image of an ultra individualistic society: Most American citizens favour a more equal social model than they perceive, evidently much more equal than it really is. They favor a Swedish model society!

So if so many people favour a much more equal social model, how it comes that the actual state of affairs is so different to their ideal? Well, the article does not give a comprehensive answer to that question but on my opinion it´s about perception and its relation to what I call the “tolerance zone” . People generally tend to be pragmatic and would a reality that differs from their ideal as long as it falls within the boundaries of their "tolerance zone". For example we might not like exploitation but we can live with it until certain point.

Therefore perception is a fundamental piece in the social structure of inequality.If people REALLY understood that they live in a much more polarized society, some of them would not be ready to accept it ( i.e. it´s out their tolerance zone) and favour changes in the social structure.

Moreover, Democracy relies on free and accurate information that influence our decisions: if we manipulate data, freedom of decision becomes a fiction. So whatever our political view about inequality is, any genuine Democrat should support a free and accurate flow of information or in other words that there is as less as possible Garbage in the INPUT DATA , so whatever GO we get , we can at least be sure that it was not the outcome of a GI but from an internal BUG in the system.

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