First the book recommendation...
Lewis Mumford's "The City in History" (http://en.wikipedia.org/wiki/Lewis_Mumford).
An interesting take on how the concept of the city and citizenry has evolved in time and the constructive and destructive societal forces we still grapple with today.
And on a related theme, 3 thoughts on society and the economy that keep bubbling in my head...
1. For all its day-to-day benefits, the thing that laissez-faire capitalism is no good at is addressing strategic problems requiring deep qualitative shifts. Path dependence on oil/internal combustion is a good example. Left to it's own devices, it's very difficult for an individual or smaller group to make a strategic decision such as "in 10 years time, we will import no more oil." Why? - Because the short term utility of the decision is negative (greater short-term unemployment, decline of GDP, etc). Even today you hear all kinds of (naïve) arguments along the lines of "we'll worry about oil dependence later...right now we need to get the economy going!"... as if getting the economy moving forward again on an oil-dependant path were something that could later be easily shifted to another path without disrupting that performance. Path dependence limits this. So government (not least of all because it is the largest single user of oil) has an important role to play in setting the rules that shift direction where strategic/existential issues present themselves because these are "meta issues" that exist above the question of "how shall we grow GDP?". -- This is where (I think) governments (laissez-faire, mixed, or socialist) fail... inevitably they get pushed back down into meddling with "economic planning", "industrial champions", etc...which more often than not are about "trying to grow the existing GDP", rather than addressing the higher-level societal survival issues. Because of this, governments usually end up "funding the past" rather than "mandating the future". -- As for the case of "oil dependence" two policies would make me very happy... (1) A clear law insisting that every year the tax on gasoline went up "$0.20/gallon" or 15% (whichever was higher) (taxes to curb demand), (2) The military mandating a 90% decline it's own oil consumption over the next 10 years. (government consumption). -- This is a much better policy vs. owning dying car companies.
2. People treat GDP (and it's growth) as if it were a concrete measure, rather than an abstract aggregation. By this I mean, people view "5% GDP" growth as an unqualified good thing rather than asking the deeper question of "have we, as a people, produced a 5% increase in long term value?". By absurd analogy, if we employed all the people necessary to "cut down all the forests next year and burn all the resulting timber in a giant bonfire held in the middle of the country", this would create deal of economic activity (huge GDP growth for the year) but a massive long term reduction in value. So in this sense "all GDP growth is not even nearly equal". Similarly a temporary decline in GDP is not a bad thing, if it is actually indicating a restructuring of society (closing of unproductive businesses, reallocating human capital). People worry a great deal about China's economic growth (7% this year, perhaps?) but are not asking the deeper questions of "is long term value actually being created?" or is this false growth? (I don't know the answer, but I think it's a good question). -- I think people obsess about GDP growth because of "measurement bias." Because it is something they can measure, they measure and compare it regardless of the whether there is an apples/apples comparison to make. The same measurement-bias problem occurred in measuring risk in the US mortgage market...foolish people measured the quantitative, and forgot about the qualitative meta-issues. So all else being equal, GDP growth is a good thing...but all else is almost never equal; not enough time is spent qualifying the GDP of various countries into "useful GDP" vs. "temporary GDP". The overgrowth of the US/UK finance industries is a great example; the qualitative truth was, that past a certain point of finance activity, no actual value was being created, rather "money was simply changing hands". Qualitative GDP is a hard problem I think, since it requires a great deal of extra effort to keep from being too subjective.
3. Evolution does not favor the "most fit", rather if favors the "most adaptable". A citizenry that is willing to "go bankrupt quickly, and start again" will do better than a citizenry unwilling to give up the benefits it has accrued over time. If there is an upside to the tragedy that is Detroit, it is that people are rapidly leaving Detroit to look for different work elsewhere in the country. This expectation/adaptation to changing circumstances will, I believe, be the ultimate engine of the US economy, in that it's populace is the least tied of most modern nations to "things needing to be the same". This flexibility is a true advantage, even if it does not always seem so.
So in the final analysis...
…life and society are evolving phenomena, requiring both guidance (but not strict planning), and the flexibility to allow individual initiative.
…while metrics and feed-back are essential to self-guidance, we fail most greatly when we define and measure success narrowly. Over emphasis on only the quantitative blinds us to the larger qualitative issues.
…simple rules can bring about rich and complex systems. Paradoxically overly complex rules and guidance bring about stultifying and inflexible systems.
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