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Michael Hais and Morley Winograd

Michael Hais and Morley Winograd

Posted: September 14, 2010 01:17 PM

Generational Economics

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This week three top Republicans in the U.S. House of Representatives-- Eric Cantor, Kevin McCarthy, and Paul Ryan -- will release their new book, Young Guns, outlining a vision for America's future that reflects their Generation X philosophy of individual autonomy and hostility to community or collective action.

Originally, Young Guns was the name of a popular movie back in 1988 when Generation X's political idol, Ronald Reagan was in the White House, but the philosophy espoused by Cantor, McCarthy, and Ryan hardly reflects the beliefs and values of today's youngest and largest generation, Millennials (born 1982-2003). Millennials believe in trusting one another and sharing ideas in order to come up with the best results for the entire group. That's why the country is more likely to find economic ideas that call for community action and local initiative more attractive than those being pushed by House Republicans.

On Wednesday, September 15, D.C. think tank NDN will host a roundtable discussion on how to use government to catalyze bottom-up innovation and economic growth at the local level. NDN Fellow Dan Carol will host, and joining him will be U.S. Assistant Secretary of Commerce John Fernandez to discuss his agency's "Jobs and Innovation Partnership" initiative to help build regional economic ecosystems where the private sector can flourish. These ideas, to be detailed in a paper scheduled for release the same day, offer Democrats the opportunity to seize both the generational and the policy initiative in the 2010 midterm election's economic debate.

The proposal's focus on nurturing local economic networks captures the insights of a new economic paradigm, based on complexity science, which suggests economies grow in the same way ecosystems do. Innovation is the key to this process as the system moves through constant cycles of experimentation and reconfiguration, or what economist Joseph Schumpeter called waves of "creative destruction." Complex ecosystems and modern economies continuously adapt and grow through a process of rewarding what works and discarding what doesn't. More trials, including more errors, produce better results and more innovative ideas. Unlike classical economics, which equates wealth with money, this new paradigm states that wealth is maximized when the largest number of people are generating ideas in a competitive, evolutionary environment.

Perhaps the most Millennial of all the insights generated by this new paradigm is the importance it places on establishing a new sense of trust in the way individuals deal with each other. In complex economies, such as that of the United States, the expectations and interpretations each person has about what all the other players want and expect creates an invisible web of human expectations that can only be managed in a Millennial atmosphere of trust and cooperation, not in the Gen X mode of everyone looking out only for themselves. Complexity economics argues that the classical economic paradigm enunciated in the 18th century by Adam Smith in The Wealth of Nations, was wrong in suggesting, "wealth is created by the pursuit of narrow self-interest." Instead, Eric Beinhocker, whose book The Origin of Wealth: Evolution, Complexity and the Radical Remaking of Economics, is intentionally titled and written as an answer to Smith, argues, "Norms of unchecked selfishness kill the one thing that determines whether a society can generate (let alone fairly allocate) wealth and opportunity: trust. High-trust networks thrive; low-trust ones fail." While the Generation X Republican prescriptions for returning to the discredited laissez faire doctrines of the past rest on the argument that you can't trust government, Millennials know that the only answer to the question "Who do you trust?" is "each other."

Trust is built over time when people have a chance to work together toward a common goal. That is what the Jobs and Innovation Partnership initiative from EDA is designed to do at the regional level. Dan Carol's research paper will present several innovative ideas on how to use government's resources to develop and nurture these networks so that working together becomes easier and more effective. (He hinted about some of the things that will be discussed in the paper in an NDN blog post back in May for those who can't wait until Wednesday to hear more.) But the key to all of these proposals is the emphasis they place on sharing ideas and using a more bottom-up approach to the challenge of restructuring America's economy.

Millennials, suffering the highest levels of unemployment of any generation, will welcome this approach. It reflects their values and beliefs and represents how they will lead the nation in the future. It's time for the rest of the country to embrace these ideas as well rather than returning to the Wild West economics of Generation X's childhood. Counter to the message of another popular 1980s movie, greed isn't good; trusting each other is the best way to breathe new life into the nation's economy.