The Financial Times have humiliated themselves by printing an article by two crackpots, Blood and Gore (no kidding), called
They say that we have been hard-wired for short-term thinking and it's bad. These mechanisms have to be replaced by a "sustainable capitalism", i.e. communism where the people are rewarded for "long-term thinking".
What a pile of shit!
Different questions in science as well as the real life are linked to different time scales - all time scales you can think of - and there exists no "universal moral advantage" of one time scale relatively to another. Both short-term and long-term thinking can be altruistic, greedy, right, or wrong. But in particular situations, one of them is more likely to be wrong than the other.
In fact, a vast majority of the world's economy only works because the players apply short-term or very short-term thinking most of the time. Certain decisions and strategies may depend on long-term thinking and long-term speculations but once these things become dominant, it's guaranteed that we face serious problems, bubbles, and crises.
Short-term thinking is often paramount. Let me explain why.
Imagine that someone sells milk in his supermarket. These products last for a few weeks - he knows how much - so all his decisions how much milk he should buy etc. and what the price should be must reflect the expected demand for a couple of weeks. Any other strategy would simply be counterproductive - for the retailer as well as the society - and no amount of vacuous clichés about "sustainability" can change it.
Various types of food and beverages "last" for different periods of time. For farmers, the annual time scale is the most important one because of the most important cycle that affects agriculture. Producers of memory chips who decide about a particular product focus on a similar time scale because the product will be superseded by others in a few years.
A very small portion of the things that people produce - such as the nuclear power plants or huge bridges - may require thinking at the decadal time scale - largely because it takes a lot of time to build them (and an extra time to make them profitable). But there exists virtually no content that would justify planning for more than 20 or 30 years into the future.
The ideal time scale that a player should keep in mind is determined by the free markets. People can err on both sides and they get punished for this error. Do I have to explain what happens to a supermarket that would plans the milk on its shelves for 20 years? Do I have to explain what happens to the societies where most supermarkets employ long-term thinking in situations that manifestly require short-term thinking?
Short-term thinking is also essential to make a vast majority of the people work. Average people possess savings for a few months or a year of life and many people are waiting for each salary. This is not a bug of the system. This is an essential feature of the system that is needed for the system to work and for various services and products to be offered without an interruption.
If most drivers in the public transportation system didn't care whether they get their salary this month, the probability would increase that they just decide to leave the passengers without the service they expect today or tomorrow.
Emergence of long-term thinking and its interactions with short-term processes
It should have been obvious by now that processes and decisions that only depend on short-term information inevitably have to dominate within a properly functioning economy. This statement is analogous to what we can see in physics. In physics, all material objects around us are made out of atoms and all the processes may be reduced to microscopic processes involving atoms.
Of course, there also exist "emergent" processes that depend on a larger length scale or a longer time scale. In the context of the economy, they're usually linked to rich individuals, companies, institutions, and countries (analogy of "large length scale"). These rich players can naturally use some long-term thinking. Because they have a lot of resources, they can use them to buy a certain "fixed" activity for a long time.
The average time scale associated with a typical amount of money "M" is clearly an increasing function of "M" although the increase is slower than the linear one. In fact, it may be just a logarithmic dependence when "M" is large.
But it's important to realize that the emergent processes are still composed out of the more fundamental, short-term processes. In the same way, a long-term entrepreneur must still appreciate that the mechanisms that make his company moving are short-term, "fundamental" mechanisms, and he is only creating the external environment for them. The microscopic processes must be left to their short-term logic, otherwise the company is screwed much like the supermarket that stores a "long-term milk" that I discussed above.
But I want to discuss one more general negative consequence of more long-term thinking than what is appropriate: bubbles and crises.
Long-term thinking is behind most bubbles and crises.
OK, imagine that you're one of those wealthy individuals or institutions whose assets justify some kind of a very long-term investment, perhaps longer than 20 years. And imagine that someone codifies a blood-and-gore system of policies with a bias that pushes you to use long-term criteria to estimate the value of things and to make your investment. What will happen?
It's easy to answer this question because such a thing has occurred many times. The estimates get detached from any reality and any observations, as perceived at the daily, monthly, or annual scales. They get replaced by long-term speculations that are likely to be shared by many people who are detached from the short-term reality in a similar way.
After all, ordinary bubbles are always manifestations of this misapplication of the long-term thinking. Imagine that it's 2003. The previous financial downturn in the U.S. is over. People want to make a new investment. Way too many start to buy lots of houses and/or give loans to others to buy houses. Their logic often said:
Real estate is a great place to invest. The value never goes down in the long run.Of course, everyone suddenly "knows" this not to be the case. Suddenly, many people realize that the long-term growth of the housing prices is unlikely to differ from the long-term GDP-per-capita growth much because a house is likely to stay at a nearly fixed fraction of an average person's life income. But at some moments in the past, most people and institutions didn't "know". So they were buying, borrowing, and lending.
Clearly, the logic responsible for the subprime crisis was a form of the long-term thinking that shouldn't have occurred. The logic was wrong: the buyers should have thought about the next month or two, whether they will be able to repay the loan. The long-term developments always depend on the short-term changes, at least to some extent. Long-term evolution can never be predicted with certainty without appreciating the complexities of the short-term dynamics.
Dubai in the future. Long-term plans such as the Death Star above shouldn't lead you into thinking that you may skip your loan payments for months. By the way, and this is unrelated to my article, I think that people overreact to Dubai's woes. Dubai is still just 1/1,500 of the world's economy and the bankruptcy is still far from certain - in fact, it's probably unlikely.
Budget deficits that last for decades are a result of long-term arguments, too. People conveniently apply Keynes' myths and say that it's OK to borrow from the future during a crisis or after a crisis. The debt will be repaid later, in a rosy future. Except that the recent decade indicates that in the U.S., the "crisis" (or "post-crisis") periods are permanent if they are defined in this way. ;-) Again, it is a wrong long-term thinking - the people's willingness to ignore the immediate effects and imbalances - that prevents the people and nations from balancing their budgets.
And I don't have to explain you the catastrophic bubbles that could be created and burst if the fraudulent trade with carbon permits became a substantial portion of the world economy.
Blood and Gore also use the term "sustainable capitalism" for the form of communism (with an elite of communist billionaires, building on the achievements of Saddam Hussein and others) that they try to build. It seems to mean that various things - consumption of various products and prices - are supposed to be constant while it is assumed that such a constancy may be extrapolated into the future. What else the "sustainability" could mean?
However, this is just a recipe to delay the collapse of things or booms a little bit and to make them more intense. Certain processes - such as the growth of subprime mortgages - were simply not sustainable and a correction simply had to arrive. One couldn't genuinely "hide the decline".
This principle is valid in all parts of the economy. Prices and consumption must be allowed to change, they will always change, and various crashes, declines, and downturns must always be allowed to materialize and they will always materialize. Analogously, the dominant sources of energy, their reserves, and their prices (among similar quantities) are also guaranteed to change after some time and in fact, technology makes these changes faster. There can't be any "sustainability" here.
By the very nature and definition of capitalism, the detailed economic events in this system are simply not sustainable and they cannot be. The only true "constant" of all these developments is the principle that the economic objects must always be allowed to freely adapt to their changing desires (regardless of their preferred or relevant time scales), their perception of value, and the changing environment.
The only threats to the real "sustainable capitalism", as defined by myself, are ideologies that want to liquidate its fundamental principles and freedoms. If the creative power of capitalism and freedom has to be temporarily reduced to prevent the start of communism or "Gore's capitalism" or Nazism or anything like that, it may make sense to think about such a reduction of capitalism.
But to deliberately liquidate the freedom of people and other economic players to choose their priorities, consumption, and prices of their products means to become the enemy of capitalism. And Blood and Gore seem to be two of them.
Ideology and political correctness
I noticed that in the U.S., or at least in the U.S. Academia, it was kind of "politically correct" to promote "long-term thinking" and "sustainability" as dogmas, regardless of any detailed data. I have always been baffled by this sort of stuff. People and institutions doing things where long-term thinking is justified should think in the long term. But others should not. And whenever someone exceeds the proper time scale, he is becoming arrogant.
Communists used to have five-year plans and sometimes even longer plans. They were never fulfilled. They were a matter of wishful thinking. There have never existed rational reasons why they should have been fulfilled and why e.g. their GDP growth should have been close to the capitalist countries' GDP growth. Certain things simply can't be "planned". The free markets optimize the GDP growth but making more detailed predictions about its magnitude in the future is always a speculation, a bet, and it is always wrong to pretend that such a speculation is a fact.
Boasting about their long-term plans - e.g. their "Plans until 2015" that the Czechoslovak communists liked to talk about in the mid 1980s, just a few years before their idiotic house of cards collapsed; a Thousand-Year Empire of Adolf Hitler; carbon emissions pledges until 2030 if not 2050 - are always speculations of people who are sufficiently arrogant to pretend that their fantasies are facts.
No one knows what empires will exist on the German territory in the year 2938; no communist knew what economic system would exist in Czechoslovakia in the year 2015; no one knows what the carbon emissions will be in 2030 or 2050. A person who invests his own honestly earned billions of dollars into such speculations is a gambler if not a lunatic. A person who invests the resources of others (or resources that he fraudulently acquired from others) into such long-term speculations is a dangerous criminal.
It's extremely important for the capitalism to continue as we know it and for the people to actually care what's happening in the short run and at other time scales that are relevant for their decisions. It's extremely important to realize that the arrogant long-term ideology that Al Gore is trying to sell is just another copy of similar memes by his friends from the dumping ground of the history such as Adolf Hitler or Joseph Stalin.
And his own arrogant statement that his long-term, green investments were more profitable only looks plausible now, before the criminal actually spends his life in prison (or is executed) and before the money the jerk stole is confiscated.
And that's the memo.