Curt Doolittle

Theme: Measurement

  • To Time Magazine on Taleb: Quantity and Probability.

    Mr. Galdel, of Time Magazine, asks readers what questions he should put before Nassim Taleb, author of The Black Swan, and implies, without understanding his own cognitive bias, that the liberal belief in our own wisdom and control of our own destiny is unquestionable. http://curiouscapitalist.blogs.time.com/2010/11/23/whats-wrong-with-bernanke-and-qe2-ask-nissam-taleb/

    Taleb has recently been bashing Bernanke saying he doesn’t know what he is doing because he didn’t see the financial crisis coming. But Taleb has also said that the financial crisis was a Black Swan. But isn’t the definition of a black swan something that people don’t see coming. Yes, we should be ready for unusual events. But don’t think you can criticize someone for not see(ing) something that by definition was unpredictable, or at least very, very unlikely. What say you Taleb?

    Mr. Gandel, “not see(ing) something that by definition was unpredictable, or at least very, very unlikely.” That’s the whole point. That statement expresses the entire difference between left and right political philosophies, and between quantitative economists, and the austrian school: namely, that the unforeseen is unpredictable because: 1) The foreseen is unquantifiable (this is the entire issue in economics) 2) the unquantifiable is unpredictable 3) the scale of the impact of unforeseen, unquantifiable, unpredictable events is likewise unquantifiable. Therefore risk is there for not probabilistically measurable by mathematical means. Therefore risk measurement, and quantitative probability as used in financial speculation is FRAUD if committed by those who understand these principles, and ERROR if used by those who do not. Since these ideas are hard to grasp, a few people commit fraud, and a very large number of people commit error. Taleb’s indictment of the Nobel Committee is the most serious because it was their awarding of prizes to econometricians that allowed those who wished to commit FRAUD, to convince a lot of people to commit error, and in doing so create this catastrophe. Taleb’s proposition is that we are applying the mathematics of closed, permutable systems (probability) to the open, innovative, dynamic system of human interaction. In effect this is the warning given by the Austrian school to all political economists: we know how to enable the greatest amount of creative innovation in a marketplace, and in doing so create the greatest competitive advantage and the lowest prices, for the benefit of all. But political systems must aim at enabling that process, not achieving any particular end, while assuming that that innovative process will tolerate infinite manipulation. Taleb’s recommendation in The Black Swan, is that we must build our nations such that we recognize the COMMON-NESS of disruptive, unforeseen events. Therefore we should seek stability, security, and safety, and not expose ourselves to risks. We should never have assumed that such a thing as complex derivatives would provide risk mitigation — regardless of corrupt rating companies and bankers. We should build policy that expects the unforeseen. We should avoid policy that invites fragility from the impact of the unforeseen. This is probably an anathema to Time’s editorial staff. Because Taleb’s premise is core of Conservative political philosophy: take small risks, work through the market, and do not empower politicians to expose us to risks: Maintain strength and capital, both human and material, so that we can survive the inevitable shocks to our system. Of course, if we just read Aesop’s Fables we can learn the single lesson that Aesop attempted to teach us: avoiding the error of hubris – overestimating our knowledge and understanding.

  • A Study On Corruption, Without A Definition Of Corruption. Is That In Itself Corruption?

    From http://dmarron.com/2010/10/31/how-corrupt-is-the-united-states/

    “According to a recent study, the United States has more public sector corruption than do many other developed economies.”

    “Perception” is only a measure of popularity. It is not a fact of relative corruption. The problem faced by the USA is that it is too large, and our political system is insufficient for a democratic republic of this size and complexity. The vast progress that has been made by human beings has largely been due to the invention of technologies, namely the scientific method, mathematics and in particular probability, but including laws, regulations, accounting, banking and interest – technologies that improve our fairly limited if not entirely incompetent perceptions. Our perceptions are notoriously faulty. So what instead are meaningful measures of corruption. Corruption defined as the privatization of public office for personal benefit? Most people confuse corruption with immorality or incompetence. And those three artifacts of human behavior each have different causes. The vast majority of the references that people actually refer to are the result of natural bureaucratic incompetence when bureaucrats are isolated from the market process of competition. The rest are either the natural side effect of the democratic process which all but requires deception, or the difference between an individual’s perception of the real world, and the actions that are possible under this form of government given the size and diversity of classes, races cultures and economic interests that exist in the polity. As such the rating is nonsensical. It is trivial for Denmark to have lower perceived corruption than the USA. However, it is in fact, far harder to to create lower perceived corruption in the vast bureaucracy of an international empire like the USA. Because perceptible corruption is largely the result of whether you agree or disagree with what you perceive. People in government are rarely evil. They are more likely lazy, ignorant, incompetent, or simply happy to profit from their isolation from the market process and their ability to dodge the delivery of customer service we experience in the rest of our lives.

  • All Costs Are Opportunity Costs. Projections Do Not Include The Alternatives.

    This article by a local democratic group led me to this CBPP article, which is a response to a paper by the Heritage foundation.

    Some critics continue to assert that President George W. Bush’s policies bear little responsibility for the deficits the nation faces over the coming decade — that, instead, the new policies of President Barack Obama and the 111th Congress are to blame. Most recently, a Heritage Foundation paper downplayed the role of Bush-era policies (for more on that paper, see p. 4). Nevertheless, the fact remains: Together with the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years

    Which is another example of pretending that the long-cycle view of the republicans, from the sixties through the previous administration is selfishness rather than a REACTION to the socialist policies and socialist social system that conservatives were fighting for the majority of the 20th century. It was the conservative perception that without reinvigorating business and in particular entrepreneurship, that the american quality of life would perish, as it had appeared to by the 1970’s. If you think the european model is better, go live there for a while. Life in europe is expensive, cramped, dirty and urban. People look, act, and feel poor by comparison. The pretty part of europe seen by tourists was built in prior centuries under the great monarchies. It has nothing to do with the post war model. European cities are vast rings of urban blight, Los Angeles style, around small downtown cores of ancient monarchical elegance. By and large, no matter what social class you live in, america has offered better opportunities to its citizens. People have more choices. Add to their costs the necessity of rearming, and that they have a social problem with muslims on the scale of our post-slavery problem with blacks, and they have tremendous future costs to bear for their model. So go live there. Really. For a while. Life in europe is expensive. An expensive life neutralizes many class status differences. And that’s really the point of those models. But that aside, what bothers me most about the CBBP analysis, regardless of the figures presented by the heritage foundation, is the belief that our country would not endure OTHER costs, often strategic costs, that are NOT expressed in the numbers, if republican policies were not undertaken. We have accomplished much of our ambitions with the wars, which is to neutralize Iraqi expansionism, and punish afghans for hoteling terrorists. that we continue to attempt to create democracies is an ideological problem. It would be cheaper to reduce pakistan and iranian capabilities as we have iraqi and afghani capabilities. But we will not do that because we feel that we must be ‘nice’ to people who attack us, rather than punish people who attack us. But unless we forecast the republican view of the future, which was one in which even worse outcomes existed for the USA’s budget, and in particular, energy costs and decreased entrepreneurship, and decreased competitiveness, The dirty secret underneath our lack of competitiveness is our education system. We are paying vast competitive costs by forcing education into the private sector, and producing inferior goods, because we do not teach disciplined excellence in schools as do the germans. We don’t teach it for political reasons. We’re dumbing down our citizens. And it’s that cost that republicans are trying to fight as well. So most of the forecasts based upon assumptions made by both sides are complete nonsense. All that said, I responded with: I have absolutely no idea how you are coming up with this chart, and what assumptions it’s based upon. But it’s correspondence with reality approaches zero. Our tax revenue problem is far deeper and far more structural than whatever assumptions you’re relying upon. These include the dollar, the world economy, structural unemployment, and demographic changes. Most importantly they involve the class and race issues involved with different occupational distributions, and the resulting difficulty in putting vast numbers of our population (in particular, males) into industries that are permanently lost to us. We have expanded enough of the bottom end of the labor force through immigration, that we cannot push down our existing labor force into less interesting, but certainly productive, jobs. No society can survive 20% of the male population living in frustration. This anxiety will be directed somewhere. The country, as both a domestic and international empire, is too insufficiently homogenous to permit higher taxation and redistribution. It is contrary to human nature. There is no evidence of it in history. There is no evidence of it in behavioral testing. The costs of conducting these poorly managed external wars do not account for the cost of not prosecuting them, which are not insubstantial, and perhaps greater. Our domestic political mythology is a conflict between the erroneous assumptions of the twentieth century, and the expired political technologies of the eighteenth century. Neither side is going to get their desired future. We are headed toward the south american model of class and racial segregation of urban centers and a powerless central government. This pattern is evident in immigration and emigration moving patterns, demographic changes, domestic trade, domestic cash movement, re-regionalization of identity, and a loss of confidence in both the government and the nation itself. Conservatives live in a fantasy that the colonial republic is possible to reinstitute. Liberals live in a fantasy of the homogenous egalitarian society. But democratic republican government cannot function at our current scale for the same reason socialism cannot function at scale – information and incentive problems. Even if politicians want to make good decisions, law and taxes are insufficient tools for doing so. Only credit and banking and provide sufficient granularity of management, and our state is not structured any longer to assist in building the economy, only in resolving conflicts between interest groups. Furthermore human beings do not, never have, and never will operate in an egalitarian fashion across status class and race boundaries because status is more liquid and valuable in-group than extra-group. And because epistemologically, human beings do not possess sufficient perception, information, and intelligence to operate as creatures without status signals to tell them which actions are good and bad for them, any more than they can cooperate in large numbers without pricing signals to tell them what actions are good and bad for them. I am sorry if this is to complex an analysis for a posting on tax and spending policy. But I am speaking to the false assumptions that underly the graph that you presented here. I would love to live in an egalitarian redistributive society. But to accomplish that goal, you will have to fragment the empire into regions, reduce the federal government to banking and military functions, return the legislative control to the localities, and allow the natural preference that people express to associate within race and class. And that is antithetical to the underclass fantasy – a fantasy which is more concerned with status than it is with money. But every society is composed of classes. Not just economic classes, but social classes, and ‘greater and lesser productive classes’. And each of these groups pursues its own interests. And because those interests are epistemological in nature ( people need to know how to act ) they are permanent. And as permanent features, they will, especially under prolonged economic duress, be expressed by citizens. Either openly or in black markets, racism, and corruption. You will never achieve equality outside of a few million people of very similar racial and cultural preferences, with very similar economic interests. Otherwise, The only equality is in poverty. And that set of problems underlies the reason why people will become more conservative. ie: they will express sentiments of group persistence and attempt to implement those sentiments by legislation. So, we are destined to decades of political hostility. Because the US is now an empire, both domestically and internationally. And while internationally the government has lost legitimacy. THat is irrelevant compared to the loss of legitimacy of the government here at home. The only thing we can do is contract the empire and attempt to get our people employed in, while getting the upper and middle classes to try to create jobs and we may have permanently displaced our society by trade policy. THe germans build their society to produce disciplined craftsmen. This is important, because craftsmen can create exportable hard goods. But we have tried to create a service economy. And a service economy must bring people INTO the country in order to serve them. We can create a medical tourism industry. But that is not sufficient. We can close our educational system to foreigners. but that is not sufficient. We can devote vast labor to building nuclear power plants, a new power grid, and electric automobiles. And that might be enough. But we can never put people back into building houses. It creates expensive sprawl. But most importantly, it doesn’t make people ‘skilled’. It’s the intellectual equivalent of ditch digging, and as such it is a vast loss of human capital. Thats the reality of it. So your deficit prediction is based on the assumption that the nation was not at a structural crossroads by the fall of socialism in 1989. It is based upon the assumption that american productivity will continue as it has. But neither the society we call america, or the advantage that was western, or the advantage that was american, persists any longer. We are in for another decade of this economy, and if history is any measure, we are also in for something unpleasantly disruptive in the next generation. And neither side has a plan for getting us out of it.

  • There is No End Of Data, Because There Is No End Of History

    Regarding Tech and Storage, and the idea of ‘finite content’ as an allegory to the ‘end of history’: Humans are notoriously victims of boiling-the-frog biases: they cannot sense long term changes and discount prior (and forgotten) opinions for current ones. Inter-temporal cognitive biases are legion. We are going to store increasing amounts of data – nearly endless in quantity. And as that data accumulates we will transform business, social life, and the economy. Think of it along these lines: We have decreased the transportation cost of content. But in doing so we have reduced the barrier to distributing content. The problem will be whether we become better at the use of the available content, or whether we can synthesize something from all that content, good and bad, and produce another generation of new content. Frankly, as the number of channels with weak or repetitious content demonstrates, we are short of content, and innovative content is becoming very expensive to produce. Or are we stuck with the same limited number of permutations of our basic narratives, and stuck with the same very large number of human cognitive errors and myths, and destined to live under the eternal problem of pedagogy: the vast number of permutations of the same content needed in order to convey the same 1500 ideas (that’s all there are) to billions of people in hundreds of cultures, all at different ages, at different states of development, each solving different problems in the context of their own individual experiences? Can we produce the conceptual equivalents of the mono-myth is each of our fields of study? Can we simplify pedagogical symbols as if they were fundamental truths, when such truths would be contra-beneficial to some cultures, races, classes, and much more beneficial to others? As someone who does a painful amount of research, it is vastly easier today to learn anything at all than it was even five years ago. And compared to library-trading obscure works in college, vastly faster. What will come of this availability of information, or rather the frictionless availability of information? Our accounting standards are a catastrophic block on data collection, because as they exist, they launder causality – accounting as we practice it is the dusty remnant of a bygone age of sea voyages. if we changed to tagged accounting data we would produce volumes of data for mining that cannot be easily found today. What would this mean for data and analysis? Taxation? Policy? Product development? THe structure of the corporation and credit cycles? There are a number of startups producing hardware that you wear around your neck, and that take photographs every second, and record all sound all day long, creating a visually indexed record of your day. How would a storage system of that nature change the world? Privacy is changing because we are socializing a new kind of manners wherein everyone is expected to be flawed, or imperfect. How will that change the world? From a product and service manufacturer’s standpoint, the typical economic analysis using factors of production is antiquated. The primary problem for most companies is to produce a product that is interesting enough to purchase. All other things being equal, today people are purchasing almost entirely aesthetic objects for purely status-seeking and therefore opportunity-seeking purposes. The price of materials is not an issue any more than is the price of food. How is this design-economy accounted for in our models and how does this affect the craft of economics, when the design function is not as visibly a factor of resource costs? Companies do not measure their brand potential (the sentiment of consumers toward a company and its products and how that sentiment is convertible into revenue) as a form of equity. If investors could see this information, how would that affect management of companies? If it becomes increasingly easy to measure it, how will that affect markets? In the post war period, social democratic society was unified under a proletariat-and-middle-class system of inclusion-and-status-seeking-through-consumption. Now that the consumer society is ‘saturated’, and status due to ownership is insufficient to provide access to opportunities, (because everything is so cheap) how will people express their identities as purchases? Each nation state has a different IQ distribution. (If you don’t like the reality of it, I’m sorry.) Since there are material thresholds to the learning of, and use of, abstractions, there appear to be limits at 130’s for designing and using ideas, 122 for designing machines, 110 for a classical education. 105 for repairing machines. How will this affect the markets, demand for technology, or the lack of demand for it? There is no end of history. The problem of human coordination and cooperation is an endless process of temporal calculation for intert-emporal ambitions. The great revolution in farming took thousands of years to span the globe. The revolution in scientific thinking started by the anglos has only been in process for eight hundred years. The great revolution in production (and calculation) of the Anglos has taken only five hundred so far. But it has been a bloody process of resistance to change. There is no end of content. Because there is no end of history.

    [callout]Because, in the end, the primary purpose of our data collection is political in nature.[/callout]

    There are a limited number of fundamental truths available to man. But fundamental truths are not as useful as we think they are. THe coordination of human beings toward shared goals requires that they believe in myths. And truth will only hinder their achievements. Combined with the human drive for status, and the different abilities of men – some less, some more – the permutations of myths (or deceptions) will create similar themes as we have seen in the past, forever. And the media and data used to distribute those infinite permutations will do nothing except increase in scale. ***Because, in the end, the primary purpose of our data collection is political in nature.*** It always has been.

  • Where From Comes The Collapse : The Schumpeterian Priesthood Profits From The Absence Of Calculability

    Mark Thoma suggests that the government should both use Tax Cuts and Spending to improve an economy. Which is a pretty common sentiment among economists. Nothing new there. He is simply changing his mind on the value of Tax cuts because they help correct household balance sheets and therefore increase the likelihood of future spending.

    In balance sheet recessions, tax cuts that are saved will help to end the recession sooner and hence should be part of the recovery package. The most important concern is still aggregate demand, and policies must be devoted to this problem first and foremost, but tax cuts have a role to play in the recovery process even when they are saved.

    One of the posters commented (as leftists do, on his blog Economist’s View) that increasing Demand does not fix the problem. Which I then used as a springboard.

    ken melvin said… The implicit assumption that demand provides solution is not valid, hasn’t been since forever. The model is invalid, has been since forever. Yet, for lo these nearly 40 years. we pursue this model in the face of the ever mounting failure. The model, never really sacred, was built on forensics, and, more, to make the status quo work. From physics and bio-science, we’ve evidence that man is capable of divining forward. Now is the time for economists to ask ‘how should it be’?

    But I think he misses the point.

    [callout]Economists don’t have any idea how the world should be.[/callout]

    Economists don’t have any idea how the world should be. The failures of the DSEM models are catastrophic. The problem of human memory (Mandelbrot-Taleb-Hume and to some degree Hayek) implies that humans are permanent victims to behavioral boiling-the-frog, and to the somewhere on the order of fifty cognitive biases. We know, as you state, that demand does not work. We know that innovation is a supply-bias that generates demand. It appears that it is the only means of increasing velocity and volume in an economy. We know that the state moved from saving-and-investment to consumptive redistribution and debt during the period of rapid industrialization and the act of selling off the american continent. We know that we assumed we could use mathematics to control this by a number of levers we call monetary policy. Vast Changes Give Our Ambitions Context The world is going through a number of changes. 1) repricing due to the asian economies coming into capitalism and industrial production. (Just as the US did to europe in the mid 1800’s) 2) reorganization, as people must learn and move to new forms of production (jobs) without knowing what to move to. 3) the future-assumption-of-growth debt bubble bursting everywhere. 4) the movement of private debt failure to sovereign debt failure, destroying the ‘lender and insurer of last resort’. 5) the demographic shift to an older media age population that is lower production if not non-productive. 6) Increasing urbanization worldwide (urbanites and rural’s have different epistemological biases because of perceived opportunity density – different cognitive biases, but cites are increasingly becoming the home of the poor, and income disparity is largely an urban phenomenon) 7) Decline (as has been predicted since 1945) of american ability to police trade routes inherited from the English after the wars (military influence) and increasing destabilization of trade routes, power, and monetary systems that will come from that change in influence. 8) the permanent decline in the relative economic position of american middle classes that will result from this worldwide rebalancing. The Failure Of The Democratic Republican Model Of Debate It appears that the working class’s attempt to bankrupt the capitalist class, and the capitalist class’s attempt to bankrupt the state to defend itself, BOTH worked. States are very nearly bankrupt. The republican model of debate between opposing forces for governmental decision-making under the unbounded system fiat money has failed. If we are going to have fiat money, we are going to have to find another way to debate the future. Fundamentally, our current republican form of government is government by non-productive people. By priests. It is quite the opposite of early republicanism under farmers, who specifically were productive. The classical liberal revolution failed to adequately define a government for the post-industrial era. The republican model of debate between opposing forces for the purpose of governmental decision making has failed under fiat money. If we are going to have fiat money, we are going to have to find another way to debate the future.

    [callout]The republican model of debate between opposing forces for the purpose of governmental decision making has failed under fiat money. If we are going to have fiat money, we are going to have to find another way to debate the future. [/callout]

    And since we have a clear difference between class predictions of the future (entrepreneurs must take and absorb risks so they see the future as dangerous while independent laborers and craftsmen and small business people see a similar view, but white collar educated workers and government and union workers tend to see a stable future – because they are isolated from visible flows of capital and risk), then consensus from PERCEPTIONS ALONE (*that’s the issue right there*) between classes of people who are disproportionately distributed across geographies, cannot come to a consensus of PERCEPTIONS. An emphasis on perceptions here: because a) the perceptions are vastly different, b) the data is insufficient and models are notoriously faulty in prediction c) our method of governance is not factual but PERCEPTUAL. The most common perceptive difference between cultures and classes is time preference (in the austrian model this is a degree of willingness to wait for gratification. In simple terms, people from different social classes have different views of time. Higher classes longer, lower classes shorter. There is some evidence that this is simply an expression of having means or not, or one of what a class teaches its children by implication and habit rather than intent, but that is counteracted by research showing that all classes have both short and long term thinking members. That would indicate that austrian model is correct, that the issue is the underlying drive for stimulation. In either case, these perceptions are material determinants of the differences in perceptions. All mathematical formule are improvements on our perceptions. If they prove true in forecasting outcomes they are extension of our senses. Or better said, they alter our perceptions of the world by improving our perceptions in limited domains. But data must come from categories of actions that we can measure. We cannot measure many dimensions. In particular cannot measure the alternative worlds that people to NOT choose (as we can forecast in physics using alternate world hypotheses). And we tend to measure commodities and ‘flatness’ best, and outside of those who worlds can barely forecast anything at all. How Do We Make Choices? SO in this ‘fact-less’ world, how should we know what to do, and how should we CHOOSE what to do, and what mechanism for CHOOSING what to do will work to produce outcomes that are beneficial enough, that productivity increases sufficiently to allow for redistribution, so that status-envy and status-achivement-for-mating-purposes are both satisfied? (And I am not ruling out that due to status envy a large part of any population will happily encourage the diminution of an economy. There are too many records of this effect in history.) We have the wrong form of government. We lack shared perceptions of the world – for structural reasons. We lack the tools and formulae to scientifically prove one set of perceptions or another, in order to come to agreement. How Should We Reform Government? So, how should we organize society, and what research should economists pursue, so that we can calculate, estimate, judge, plan or whatever, a future that we can agree upon in a democratic society? Or should we simply try to come up with another set of ridiculous religious concepts even if they are metaphysical (marx and Smith) or positivist (keynes and Friedman)? Or is there yet another way? Is there a way to look not at mysteries (religions and metaphysics and morality tales) or to look at false sciences (formula and application of the constant physical world principles to the heuristic world), as means by which to FORCE AGREEMENT BY FALSITY under the assumption that the world is either externally created, or naturally bound, or scientifically predictable? All of which we know are FALSE. Or instead, is there a way to cooperatively EXPERIMENT and DISCOVER that world and SHARE COOPERATIVELY in it’s RESULTS? In other words, is there a way to create a government of DISCOVERY that rewards all citizens for their participation? And more importantly, is there a way to create the correct SENSATIONS that are PERCEPTIBLE to both the entrepreneurial and the craft and the labor classes, such that the CAUSE and EFFECT of one’s actions allow the productive classes to coordinate and profit, without the systemic bureaucratic pilferage for the purpose of profiting from class warfare? Or better stated, how can we create a system of information post-agrarian, post-industrialization, that stops the priesthood, whichever form of mysticism that they practice, whether it be Monotheism, Traditionalism, or Progressive (Socialist) Democratic Secular Humanism? The rational man asks, how do we kill off religions, and that means all of them, including positivism? We are asking the wrong question So, I think both left and right are asking the wrong question. And if they are not asking the wrong question, then they are simply a band of fraudulent thieves. The problem is not one of solving economic science, so that we can justify one position or another, using what we claim is science. The problem is the very nature of our process of government. The Republican Model Of Debate Is Insufficient For Political Action, because men and women in government are incapable of possessing the information necessary to make the level of decisions with which they are tasked. We know that socialism fails because of a failure of ‘calculation’ and of ‘incentives’. We know the political model of republicanism fails above a certain very small population for the same reason that socialism fails outside of a family: that calculation becomes impossible, and incentives fail to encourage and reward productive behavior.

    [callout]The problem is the very nature of our process of government. … Religion and Law and the republican model are artifacts of the agrarian world which we left behind a century ago.[/callout]

    Sensation, Perception and Complexity We live in an advanced industrial society with tens of millions of products and hundreds of millions of people, calculating a complex future in a vast division of knowledge and labor, using metaphysical and inherited systems of perception under a government that was designed for a minority of wealthy farmers to coordinate decisions for a large number of farmers and subsistence farmers. WE use religion, and law, and now false application of science (which is simply a process of organized discovery of an existing system) to make our choices. But our choices fail. THey fail here in America. They fail in the more socialist world of europe. They failed in the most socialist and communal world of the east. They fail everywhere. Religion and Law and the republican model are artifacts of the agrarian world which we left behind a century ago. The Answer Is In Front Of Us So what is it that we need to do instead? The answer sits in front of us. It’s our religious cultural fantasies that create the mythos that prevents us from seeing it. It doesn’t matter if that silly religion is christianity (military mysticism), judaism (minority mysticism), or “democratic secular socialist humanism” (positivism: mathematical mysticism). We create a lot of social habits without really understanding them. We invent behaviors and technologies by accident and define them later on when we finally understand them. We label them and then claim to understand them, as if we invented rather than stumbled upon them by trial and error. The answer isn’t any form of ‘ism — It’s just to work at it. The question is, how do we get everyone to voluntarily work at it? What institutions do we need to make it work? How do we change government so that these institutions succeed? THe libertarians have been right about a lot of these institutional problems. They have been wrong on selfishness and money. Christian protestants have been right about cultural discipline and production, but wrong about separation of church, state, and banking. Keynesians and Friedmanites have been wrong about free trade and monetary policy. Everyone is just a little bit right.

    [callout]Or do we, like all other urbanized civilizations in history fall prey to the real reason for Collapse : the failure of law and religion .. due to permanent [urban and market] anonymity that breaks the prisoner’s dilemma of social cooperation…?[/callout]

    Collapse Or do we, like all other urbanized civilizations in history fall prey to the real reason for Collapse (Diamond was wrong) : the failure of law and religion (punishment and ostracization) in an urban society due to permanent anonymity that breaks the prisoner’s dilemma of social cooperation in families, friends, tribes and among farmers and craftsmen, who are dependent on themselves for their production? Schumpeterian Intellectuals Since we created the market, people have increasingly chosen to enter it. First by making excess production in order to get money to buy scarce goods that they could not produce on their own. Second, by entering the market, by producing ALL goods for the market and relying entirely upon the market for sustenance. They stepped into a world of risk without the comforting cushion of their farms. Then, once dependent upon the market, they started seeking jobs in the market-bureaucracy where they were isolated from the market risk. (this is the purpose of going to college today – to exit the market). And this is the entire issue for our civilization: so many white collar people have exited the market by joining the private sector market-bureaucracy, and are compensated highly for it (as were priests in pre-secular society), that they ‘sense’ that the market doesn’t exist. So we have a productive class (people who speculate with capital whether) we have a dependent class, and we have a bureaucratic class (the state, and the private sector white collar and union workers). The dependent class cannot function in the market. The bureaucratic class lives off other people in the market but are exited from it – living in the best of both worlds, and the capital-risking class is the minority of the market taking all the risk. The market is a process of discovery. The question is how do we build a democratic society for a world of discovery without having the white collar market-exiters (Schupeterian intellectuals) destroy the market? Or rather, how to we reward the productive classes, whether they are laborers, craftsmen, entrepreneurs or capitalists, and deprive the priesthood who lives off them? Because all Priesthoods. All bureaucracies. Are predatory. And our Bureaucracy, our priesthood, has simply extended into the private sector.Today’s economists are no different. They are, in large part, part of the positivist priesthood. That’s the reason for Collapse: Schumpeterian collapse: The dependent and bureaucratic classes cause the collapse of the productive entrepreneurial class, who, like Atlas can no longer carry them, or is no longer willing to. The solution is to create a government that does not pool information and thereby launder it. But that informs everyone accurately of their contribution, or dependence, upon the cooperative endeavor, the joint stock company that administers the market that we call ‘the state’.

  • Flashlights, Power Grids, Institutions of Calculation, Pride and Human Frailty

    The difference between the schools of quantitative and behavioral of economics consists largely in which errors they choose to accept in furthering the utility of their craft. Each of these schools masters a set of conceptual levers with which they seek to solve problems. Or more realistically, the people in the school learn levers, and define their schools by the limits of those levers. They explore their field with levers. They do not necessarily even understand, or agree upon the problem they are solving with those levers. Often, they redefine the problem by the levers at their disposal – a form of unintentional circular reasoning that is rarely evident except in retrospect. A lever is something that they can use to run a test. Testing is the sensory tool of science. But more clearly, methods and their tests are extensions of human perception. Think of them as an insects antennae. They sense whatever they are designed to sense. But it is up to humans to synthesize that new sensory data into a cogent whole. The problem occurs when our specialists become so enamored of their sensors that they bias their perception of the whole, as something designed to be explored by the sensors at their disposal. Like any school of thought, the limits of that school are determined by the methodological scope of it’s levers, what effects they ignore, or what priorities the school’s practitioners give to which effects either considered or ignored. Most often, practitioners become enthralled with the levers they best understand. These ignored effects, and preferred levers, constitute errors. THey must be errors, if they eliminate or ignore information — information that may be either influential to the test, or influential to secondary causes. My favorite response by economists is “… but we don’t consider that economics, so we dont consider this a problem for us to solve.” When in fact, economics is simply the school of measurement of the social sciences, when we choose to make material improvements in life — due to the increasing division of labor and resulting decrease in prices – our method of determining political policy. Economists then ignore the secondary causes of their research: they seek to justify a tool, rather than follow a chain of causation. In the quantitative (abstract) and experiential (experiential and logical) schools of economics, participants either err on the side of understanding human behavior in favor of models that support levers of government intervention, or they err on the side of understanding that there are consequences to policy in the absence of knowledge about secondary causes. The difference in priority between the quantitative and the behavioral, is simply the priority that each gives to it’s methods. They seek to solve the problem from different ends of the human spectrum. For example, the behaviorists did not understand the stickiness of prices and contracts over time, nor the importance of having sufficient money in the system, nor the problem with their concept of freedom, its relation to property, property to calculation and incentive, or the epistemology that property permits humans to employ. The quantiatives did not understand number of very important things, primarily the nature of entrepreneurship, the limits of the DSEM (dynamic stochastic equilibrium model) the nature of what numbers can represent as categories given that factors of production, and even all objects in human experience, have different utility at different times. Nor did they understand how important habitual knowledge, (traditions and habits) are in society, and how quiclky humans forget them when they are not of daily use due to social programs or credit money, inflation, or taxation. Nor did any of them understand that the problem we faced was the nature and dependence of society on human calculation itself, and that accounting practices, government by and laws, as well as the democratic system of government, are effectively laundering useful causality from the pricing system, as well as distorting it through the use of excess credit money. This axis of differences between abstract quantitative and experiential logical is intersected by those people that err on the side of institutional conservatism as a protection against fashion or err on the side of institutional change as a means of altering society by way of its institutions of cooperation and conflict resolution. However, both ends of teh spectrum ignore either the opportunity for change in preference for risk against institutions, or ignore the impact on institutions in favor of experimental change. And these differences are not minor or meaningless. It is the difference in the philosophy of giving people tools by which to better themselves and others, by fulfilling wants, and rewarding those who do so, and the opposite camp, which desires to change the status of humans at the discretion of the political managers who can achieve the power to pull the levers of their choice, and create class conflict over the spoils of productivity gain. The debate rages. However, it appears, at least after cautious study of the history of ideas, that experiments that extend our institutions of calculation are those that are material investments in humanity. And those that are more fashionable, are minor adjustments to class, power, and material randomness as we fitfully pursue life. Our problem is not economics. It’s calculation. Our political system is destroying our ability to calculate – because it’s members do not understand the underlying problem of human calculation, nor the need to modify government to facilitate it. That change, that one change, is the single most important modification we need to make to our institutions. Redistribution becomes calculable under that model. Class warfare becomes unnecessary. And to support Durkhiem, it prevents the state from suppressing freedom and individuality, because it no longer needs to, nor does it need to be a costly behemoth sitting on top of our society, nor can it, because it’s worth would be measurable. That is the methodology that we need: measurement of causality. Prediction is simply a silly chimera to compensate for the lack of information because we launder causality from our political efforts, and to justify the pulling of levers of government through taxes and laws because we lack that measurement and the information it contains. And if my argument appears to favor both sides, yielding confusion rather than clarity, it is because we must continue to compensate for the practical reality of human frailty and foible, while creating institutions that allow us our political expression as a vent for our frustrations, while building a set of institutions that make our society increasingly calculable, comparable, forecastable, perceivable, and thusly one of cooperation in a division of knowledge and labor. But we must not, ever, think that politics is more than a vent for the resolution of conflict between groups. Our society is it’s institutions of calculation. Our fitful political rhetoric an amusement and distraction that rails against our lack of control over them, while at the same time our prosperity entirely dependent upon them. And we must constantly monitor our schools of thought, as well as our own fantasies, so that we are not so enthralled in our pride, that we forget that we are inventing our future, not discovering it, and that each of these methods, schools of though, political systems, is a flashlight in the dark, and our institutions of calculation the power grid that keeps them lit.

  • Simplicity Is a Relative Measure, Not A Test Of Truth

    A left-leaning blog-squatter on Economist’s View repeatedly makes requests for simplistic reasoning, thereby making his level of understanding, that by which all rhetoric should be judged: a measure which is obviously arbitrary.

    All expressions are increasingly abstract evolutions of directly experiential concepts, and perceived simplicity in communication is a function of the commonality of experiences shared by the participants. (Hence the still misunderstood nature of evolution as undirected.) Insight just is the opposite – the communication of unseen patterns – or insight would not be a scarcity and therefore of value, or notice. Quantitatively measured categories require presupposed invariance in the category definition (the variables), while the qualitative nature of human choice, the content of human memory from experience which determines the interpretation of ‘facts’, both serve to undermine such analysis. Our native method of calculation is to use effort, property (objects of utility) and time. Numbers simple help us fine tune our perception and measurement. Next, history and it’s data are correlative assumptions without an underlying theory of causality described by human action. Historical correlation of events is simply an updated variation of the will-of-god. Facts are not facts unless they have a theory and correlation is not a theory. Mathematics is not causal, only narratives are causal. Narratives are only causal if they are expressed as a chain of human actions which are testable by the application of behavioral norms and comprehensible incentives. So correlative political statements attributing policy to resulting economic factors are not necessarily causal, especially given the time delay. Furthermore, external factors that are more influential than policy must be included or eliminated lest we attribute cause to symptom. For example, the much repeated error on this board attributing 90’s success to Clintonian policies rather than the lack of those policies interfering in the speculative growth technology, and the fall of the soviet model, and the rise of the chinese model. Politicians have few short term levers. And they are largely punitive (tax and law) or positive (credit) but they have many long term levers Unfortunately our system encourages them to act for the short term, and so does the ideology of class warfare under the rubric of ‘equality’, given the material differences in human capacity for production in a post-agrarian world. So if this is a forum for political advocacy of a position independent of such understandings, then that’s one thing, but as I understand it, it’s a forum for the discussion of economics, which, as a young and not well understood science, is of material consequence, since economic productivity has replaced religion and moral conformity as the means of compelling one group or another to the bidding of the others by the application of the violence of government through physical, tax, or credit (tax) means. In other words, many people are make assumptions in order to support a confirmation bias, and rely upon a requested simplicity where none exists, and if it does exist, it does so by requiring that events, and causes, be perceptible to the individual, when the entire reason we have economies and institutions and habits and quantitative tools is to extend that perception, which is naturally limited to property and perceived utility.

  • Comparing Medical, Technical, Educational, and Political Testing Methodologies

    There was a great deal of research and discourse on technology in medicine when computing systems began to enter the operating room in the 1990’s. In particular, in the use of anesthesia. The most commonly discussed example was a difference in turning knobs, in which one machine turned right to increase and another turned left to increase, and in confusion the patient was killed. This and other events caused a systemic review of medical equipment and the development of standards. THe emphasis in the medical community however, was just as directed at training it’s staff as it was at the hardware. This has not been the case in IT, largely because costs of risk are more easily assumed, and costs of failure are perceived as more tolerable. However, this tolerance is due in large part to a lack of visibility by executive management, to the breadth and impact of those risks, partly because of a lack of understanding of business risk measure by IT management, and in many businesses a failure of IT and Accounting and Finance to share sufficient information for IT to do so. The medical and engineering fields attempt to solve the problem of risk and recovery differently. They do so because of biases. Those biases evolved from the methodology and traditions of the culture of the profession. There is a tendency to think that IT has fully commoditized and therefore can be regulated as is plumbing and electricity, but IT is far closer to medicine in it’s complexity than are the more mechanical traditions. And this confusion, or error in philosophy is common within many different specializations or social groups. From technical specialties to the philosophical biases of entire civilizations. The medical field, especially in surgery and hospital care, includes infinite risk (people die, and there is a high liability cost) and consists of actions are taken by people using tools. This set of properties has made their industry focus on the human element: on improving people, and in particular, on the assumption of failure, therefore improving people. In medical devices, there is an extraordinary emphasis (due to research papers) on producing tools with very consistent user interfaces that are extremely simple and consistent (such as dials turning the same direction producing similar results) and an emphasis on protocol (scripts that are followed), and lastly on training people to use these tools in order to reduce failure. But every process is seen as a human problem of discipline and training. Not of engineering at lower cost, or productivity — but as risk reduction. Production costs are far lower than the costs of failure. This is true for the military as well, where vast numbers of people must work in extraordinarily deadly conditions, under extreme duress and exhaustion, using complex and dangerous tools. Soldiers are taught very simple behaviors, one of which is to speak entirely in facts, rather than interpretations – one of the primary purposes of western basic training. To teach soldiers to separate opinion from recitation of observation. Similarly, when it was found that different hierarchical social structures around the world prohibited airline crews from communicating effectively and was causing deadly crashes, these crews were taught english and declarative mannerisms by training specifically to overcome these cultural biases and lack of clarity in communication –which is why english is the language of transportation. English contains a spoken protocol of clarity which english speakers do not understand, just assume, and that clarity originated in the western military tradition of enfranchising all citizens in a militia. Epistemology. This is a word meaning, in practice, ‘the study of how we know what we know’. Every field has an assumed epistemology. Teaching, Soldiers, Politicians, Engineers, Plumbers, and even psychologists, have a means of understanding causality, and a means of testing themselves. Because each field is limited and includes different kinds of risk and failure, people use different testing criteria for planning and choosing their actions. Teachers for example over rely on written tests rather than question and answer, and therefore test most often for short term memory rather than understanding. This has consequences for all societies, but largely for our political system which relied on rhetorical ability. Protestant churches in the colonial period were effectively debating forums for local social solutions — something that is required of a democratic system. Furthermore, another consequence of teaching methods, that attempts to reduce costs, is that of literally destroying boys minds (physical damage to the brain development) by making them sit for hours a day. (Or by the use of drugs to cause similar brain damage.) This destroys society in doing so, because while girls learn to cooperate through compromise, men learn to cooperate through displays of competition and experimentation with dominance, and if prevented from doing so they will not develop a interest in the real world, fail to take responsibility and have little interest in society. All because of the epistemology of teachers, in an effort to perform ‘efficiently’. (And as fathers they will play world of Warcraft, not because they want to but because during their development they were forcibly harmed by these teachers.) Doctors do not make these kinds of errors. Because the cause and effect of their actions are visible. The cause and effect of political policy, in particular, monetary policy, is likewise opaque, and politicians seek to keep it so. Fire regulations are fascinating, and building codes in particular, because of how few office building fires we have. The cost of construction is heavily influenced by these codes, and has dramatically risen, and both regulations and costs continue to expand despite the fact that they appear no longer to reduce risk. Conversely, firemen still drill and practice on a regular basis which is good, but we still allow tall buildings to be constructed despite the fact that it is dangerous to put many people in a building of more than six stories, that it creates congestion, and in general, research is conclusive, that people don’t like working in them, and that they are unhealthy environments, and heat dissipators and energy consumers. Effective military organizations run drills. Lots of them. The US in particular runs them constantly. Some NATO countries (Hungary) by contrast only allow their soldiers to shoot one to three bullets in all their basic training in order to reduce costs. But in practice, these organizations are symbolic in nature and are incapable of fighting. Partly because fighting in adverse conditions is largely dependent upon the relationships between soldiers built through shared experiences. People are not that smart IN time, but fairly smart OVER time. We can solve problems given time. The only way to reduce the time, which is equivalent to cost, of recovery from failure is to pre-compute, or pre-train people to recover from failure, and in particular in the process of discovering how to recover from failure. If IT management applied the same discipline, they would, once a quarter, create a scenario where three or more elements of their systems failed within a short period, and the staff had to recover from it. This is the approach most military tacticians take to educating their people. There is too often an emphasis on the efficient achievement of goals, rather than on giving people goals and inserting ‘lessons’, or hurdles and obstacles for them to overcome. In IT engineering, risk is rarely stated, because it is rarely visible, despite the catastrophic cost to business. Errors are considered to be functions of the machinery, rather than of the people using and maintaining it. People are considered a cost to be minimized so that more work can be put through them. If a system cannot be assembled and disassembled and tested at every point in the process, then the people cannot understand how to recover it under duress. This mastery by intentional reconstruction is how Formula One racing teams think of the process of engineering. They constantly drill, because of the value of time in racing. IT is this value of time, and its lost productivity cost, that is hidden by IT. furthermore, IT does not report on the problems it solved and the cost of those problems sufficiently to keep management informed and educated on risks. THe converse happens as well, which is that IT is a resistance to change, because the impact of that change is something they don’t understand, because they have spend too little time in drills. Some companies are constantly fighting this battle. Citicorp for example, was a cluster of different banks under one management system and brand name, but not under one infrastructure (I hope I have the bank right here, I am pulling from memory). This meant that in the financial crisis, it was less able to react, because they kept costs down by keeping risk high, by not developing a common infrastructure, both technologically and organizationally. Doctors have extraordinary peer reviews post success and post failure. They spread knowledge by discourse and question and answer. (Part of this is the skill of medical students in analytical thinking and rhetoric versus that of the IT population.) However, the concept of improving people thorough discourse is consistent in their approach. Each patient is a new experiment, having the potential for failure or success and the consequential new learning that comes from either. Retail shops use secret shoppers to test for shoplifting and customer service. The military uses maneuvers, and even uses it’s own members to test it’s own security. IT rarely conducts planned failures. To see how the staff reacts and to educated them. IT does perform upgrades. And for this reason, upgrades and system maintenance are one of the most important means of keeping the staff trained, because they fulfill as similar function to drills and teach the value of redundancy. These assumptions, this epistemology, is different for every little field of specialization. But what happens in each field is that they in turn confuse the methods, practices, tools, means of testing, and general operating philosophy then become assumptions about the nature of the real world, and assumptions about human nature, and even human capability, and in particular human plasticity and adaptability, as well as human learning and understanding. WHen in fact, we must first understand the human animal as the maker and maintainer of complex systems, and that the human animal has very specific properties, none of which are terribly impressive without extraordinary role playing, testing and training in real world (versus written or spoken) conditions, where, they must cooperate toward complex ends, in real time, under conditions of duress. For example, human civilizations are different largely because social orders were initially established by their warriors and their battle tactics. It may seem odd that the east, west, steppe, desert, and mystical civilizations all are caused (Armstrong, Keegan) . It is uncommon that even westerners understand that western battle tactics in europe were heavily based on maneuver (chariots) the required cooperation. Cooperation required political enfranchisement, political enfranchisement led to equality, equality led to debate, debate led to logic, logic led to science and rationalism. This is different from both the tribal raiders, the mystical zoroastrian as well as the chinese familial and hierarchical traditions. An interesting problem for intellectual historians has been why Confucius could not solve the problem of politics and directed the civilization to familial structures instead. Or that the primary difference between east and west is the assumption that our job is to leave the world better than we entered it, that the purpose of man is to transform the word for his utility, that man is the ultimate work of nature, versus the eastern view that our job is to work in harmony with the world, (non-disruption), that humans are somewhat vile by nature, that man is necessarily in class structures, and that truth is less important than the avoidance of conflict (except when it involves barbarians). These differences led to our different concepts of life itself. In IT there is a cultural assumption that the engineers job is to prevent failure, or, to work with the systems without causing additional complexity that increases the probability of failure, or to repair from failure. However, few organizations are structured such that there are drills, and processes by which to recover from failure for the entire purpose of educating the human element in the system. This cultural legacy is largely due to the perceived (although not factual) high cost of IT implementations, largely as a remnant of the fact that during IT’s development, a great deal of research and development, in pursuit of competitive advantage, was conducted in-house, with the resulting failure of research and development programs. In fact, IT infrastructure costs were significantly lower than many previous innovative technologies adapted by business. (In particular, electricity as a replacement for steam or water power.) And by comparison, the calculative burden an uncompetitiveness placed upon companies by antiquated accountancy methods, or government taxation programs, or building codes, are often higher than IT costs. In Europe for example (as well as in California) businesses for small networks, rather than more efficiently combine into larger organizations with lower administrative costs, just to avoid these external expenses. So, this is not only an IT problem, but an executive management problem: the CEO cannot authorize budget for risk mitigation, (nor cover himself by doing so) if the IT management does not understand and quantify the risk, or it’s probability. ( If Executive management does not promote better methods once presented with the information, then the popular revolt is the only real solution (go work somewhere more worthy of your talents that doesn’t reduce it’s cost of doing business by counting on the fact that you’ll live under greater unnecessary stress, and possibly lose sleep and health, or even risk your job, because you were not allowed to engage in preventative activities. Conversely, if you dont provide them with that knowledge, in form and quality at least equal to those provided by sales and accounting organizations then they are not to blame for your inability to do so. They have an epistemology too: which is that they are told many things by many people, and must be able to test these bits of gossip and opinion somehow and only numbers can provide that ability.) IT management has long been criticized for wanting a seat at the table, but not warranting a seat at that table. (Nick Carr) But in general, these people may understand the craft, but often fail to understand the metrics and management of capital in a business, In other words, executives are included for their ability to postulate theories and deliver results. Customer service internally and externally, Risk (Failure Management), Productivity Contribution by the improvement of competitiveness, and Cost OF SErvices, are all criteria by which IT organizations should be measured. From the “ultimate question” for customer service, to cost of service, all of these are measurable. But you cannot judge that service if the management does not adequately measure it, and report on it, so that the executive management of the organization is capable of understanding and making decisions that support IT’s mission. Think of how much information the Accounting (history) and Finance (future) organization gives to the CEO. THink about how much the Sales organization gives to the CEO. THink of how LITTLE marketing organizations tend to give by comparison, and think of how much less than marketing, the IT organization gives. The respect and influence that a function of the company has over the distribution of resources in the company has largely to do with the metrics that it provides the management team. And how much exposure to risk the IT organization inserts into the business by failing to see the management of complex systems as one of engineering rather than one of human development and the testing of humans for failure, and the measurement of humans in their ability to recover from failure. Just as public intellectuals try to change public opinion to influence policy, by the use of narrative and argument, as well as data and it’s interpretation, because they need to help people think differently who have previous intellectual assumptions and biases dependent upon the methods and tools that they use in daily life and then apply outside of that domain of experience, IT management, and to some degree, the staff, must look at the underlying assumptions both in IT and in general business management and develop the discipline internally to experiment with failure, in order to teach the human component of complex systems, how to react in short time periods, while at the same time, using metrics and measures to inform the policy makers in executive management, so that they can intelligently and rationally make decisions about the allocation of resources for the purpose of creating profit (a measure of our use of the world’s resources), and the reduction of risk, so that all members of the organization, who are choosing to invest in this stream of income and friendships and knowledge at this organization, instead of an alternative stream of income, friendships and knowledge at another organization, can reduce the risk and cost to themselves in the event of failure of those estimates of risk. It’s all economics after all.