Traffic jams and spontaneous order… In Germany

Remember my post about letting people in front in a traffic jam? I recently returned home from a short family trip to Germany and there I witnessed the solution, and I thank Hayek for coming up with the theory to explain the phenomenon.

See, in the northern part of Germany where I was, I noticed that it was an unwritten rule of thumb to always let in one car in front of you. This worked really well, with both lanes accepting it, and behaving accordingly without taking advantage or offence.

As far as I know, there is no direct law concerning this. Therefore it is what Hayek called a spontaneous order. Spontaneous orders are orders that are shaped by human actions in social contexts, but without the coercive force of government or other type of planning and without external enforcing, like a police force. They tend to be highly efficient, as in this case.

Unfortunately I live in Denmark and not Germany, where this rule has not emerged. I believe these two nations to be very alike culturally. The only main difference is that the Danish state is huge and involved in incredible many aspects of the life of its subjects. That is not beneficial for the emergence of social orders. They need freedom, even a little chaos, to evolve. The other path, that of violent government planning, is not able to account of the multitude of situations that spontaneous order typically do, and they need enforcement, where spontaneous orders comes natural, as all will likely on average benefit equally. After all, you do not know where in the morning rush hour traffic you might end up.

So thank you Germany for solving the issue… And thank you dear reader for taking the time to read this.


PFSD – An applied Austrian afterthought

This is build on my post about Post financial stress disorder.

The brilliant economist Roger Garrison of Auburn U once told an anecdote to me (it might not have been his creation, my notes delude me on this subject). When asked how Hayek and Friedman differed in their respective approach to dealing with the Great Depression the following story serves as an illustration: Imaging a great big green monster showed up in Louisiana and started a rampage of destruction. Both economists are send to investigate. Friedman starts by examining how much is destroyed, how fast is it destroyed, when is it destroyed, was it eaten by the monster or trembled by it’s great feet? Etc… Hayek on the other hand, tries to solve why the big green monster appeared in the first place and if we can learn from this so not to have it reappear again.  

This short story tells of one of the main lessons of the Austrian Business Cycle Theory; that the period of unsustainable growth fuelled by overspending and loans is actually just as big a part of the business cycle as the resulting downturn. So what does that tell us about avoiding PFSD in the future for your origination?

Honestly I am not sure yet. We still have a lot to learn, but what I believe to be important is to set clear goals and not care about much else. When selling you time as an employee the least you can ask for is knowing what you are expected to deliver and do.

That sometimes takes a backseat in times of growth and prosperity. Instead you just hire and hire. Then when the financial stress sets in you are stuck with no real knowledge of what the right performance are and who is contributing to it, so you just fire and fire (in many cases based on seniority, so essentially trying to get back to the pre-spend days). That leaves all employees and subsequently the organization as a whole, with a traumatic feeling of loss.  So use you time now to set up systems that tells and reward the right behavior.

Pricing social betterment part 2

This piece is trying to exemplify part 1.

About a week ago I had a trying day I must admit. And worse, because of it, I noticed that I did not do as many nice things or acted as friendly and politely as I aim to be my normal standard. I did wish the shopkeeper a nice day, but on the other hand I shouted out in the car when a driver cut me off. I did not jump the cue at the baker when the opportunity presented itself. But I did not hold the door for the person behind me. And on and on. Now why was that? Truth be told, I was feeling sick, and had a long schedule. My energy reserves were simply running low. That got me thinking.

See in Denmark we have this term: “lidt overskud i hverdagen”. Roughly translated it means having some “surplus” in your everyday life that you use to pass around good vibes, help out, and spread joy. That got me thinking… See in order to share, you have to have surplus. Because doing good carries costs. That is because a good deed, even when you want nothing particular or directly phased in return, is nonetheless a transaction. In economics we know from stars like Hayek, Coase and Williamson that doing any voluntary transaction carries costs. So let’s look at transaction costs. Eggertson defines the allusive term (1990:14) ‘transaction costs are the costs that arises when individuals exchange ownership rights to economic assets and enforce their exclusive rights’. (Eggertson, T. (1990): Economic Behavior and Institutions. Cambridge University Press). So when you bake a cake for your roomie or even hold the door for someone, it cost you to do it. Not juat the raw material, but also the action itself. There are quite simply transaction costs to doing good, because there is transaction costs to life itself.

I will try to in future pieces here to talk about getting the necessary surplus in your daily life and how to most optimally distribute this into transactions that improves the world (I tried to write sentence this without sounding like a televangelist or selfhelp douche… I did not succeed I am afraid).  

I’ll finish this piece this by recalling the worlds of Echo it‘s angel Lars Trope; To be truly wealthy is to aim to create to value in whatever you do. Inspiring stuff.

Have a nice day. I am happy you took the time to read this.