Thursday, July 21, 2016

Revisiting Adam Smith... and surprising trends in modern capitalism

For a decade I have been urging that we need to revive a conversation about Adam Smith, who was anything but the promoter of ruthless laissez-faire that today’s right proclaims. In the last year or so, especially on sites like Evonomics, ever-more economists and scholars have been gathering around this idea -- showing how Smith understood essentials – e.g. that aristocracy and oligarchy have always been the great enemies of open and creative markets. Now an academic work parses Smith in detail, showing that this Founder of our western enlightenment experiment was not values-averse or even values-neutral in his descriptions of healthy capitalism. See: Will the Real A. Smith Please Stand Up, by Matthias P. Huhn and Claus Dierksmeier in the Journal of Business Ethics.

This re-examination of Smith is long overdue. And our era’s oligarchs need this tonic more than anyone. For if they fail to understand the real Adam Smith – along with the moderate, benign Rooseveltean reset that made markets fair and productive for a generation – then they risk seeing another pair of names rising louder in our percept. Marx and Robespierre.

Among those rediscovering Smith, take this article from Evonomics: “Market Capitalism is Broken: Why Adam Smith Would be Outraged by Modern Finance,” interviewing CNN global economics correspondent Rana Foroohar about her book: Makers and Takers: The Rise of Finance and the Fall of American Business. 

Today Adam Smith would clearly be a democrat. No social-darwinist or laissez-faire fool, Smith reminds us that competition that is unregulated is always, always spoiled by cheaters. (The party of cheaters has no right to sully his name by even speaking it.) 

Republicans: study about Smith. See why capitalism and market enterprise – which generated our vast wealth – are top victims of the monstrous oligarchs who have hijacked your movement. 

Libertarians: relearn that ‘competition’ should be your keyword and not slavish propertarianism!  As for bureaucrats, while dangerous (I freely admit!) they have never ever been as awful enemies of freedom as feudal oligarchs were. And are.

More? Smith was the First Liberal! You are right that the flagrant-horrid surge of cheating must be stopped... but accept also that enterprise and competitive markets made the wealth that enabled us to do so much for people. Democratic administrations always (always!) do better with the economy.  Learn to brag about that.

Oh, as part of this huge trend... just released: Who Cooked Adam Smith's Dinner? Swedish journalist Katrine Marçal looks at women's often overlooked ‘invisible hand’ in the economy. She aptly deals not only with matters of justice but economic contradictions.  Like why does the GDP go down when an industrialist marries his housekeeper? See it reviewed in The New Republic

== Modern Banking ==

In 2015 IBM joined Intel, Cisco, the London Stock Exchange Group, JP Morgan, Wells Fargo, and others to form Hyperledger,an open source, blockchain-based project inspired by Bitcoin that the companies hope will one day provide a more secure and reliable way of trading stocks and other assets.

Goldman Sachs is entering retail consumer banking by letting even poor folks with just $1 open small accounts that will not (they say) be bled to death with nickel and dime charges. You can open a 401(k) even if you have credit card debt. Quite a shift for a 147 year old investment house known for catering to oligarchs. And at first sight there are potential benefits to Goldman (new customers and a better public image?) as well as the nation. Indeed, helping the poor to get clean bank accounts where they can cash their pay and evade the payday loan parasite industry is a goal that’s getting a lot of attention. 

Which is in part a reason to view this cynically. Goldman machers know that it’s likely that the next president and Congress will pay much closer heed to this problem.  There is talk of restoring the Post Office’s former ability to serve as a last resort bank of basic needs – like depositing social security checks and paychecks -- the way it did for many years, and most European and Japanese postal offices still do.  Combine this with ATM access and autopayments, and much of the tension would go out of life for those folks. (Throw in more education in schools about simple financial wisdom and debt avoidance.)

The crux? These guys at Goldman are clever. Seeing that writing on the wall, they are moving on an opportunity and perhaps may limit the extent of Democratic banking reforms.

Oh, and now this. Should you even use paper checks, anymore? Or give others your bank account and routing number? Even though it moves much more money than all of the credit card companies combined, the system the U.S. uses to transfer cash in and out of bank accounts – the Automated Clearing House, or ACH – is in many ways less secure than the credit card system.

== Do nothing Congress ==

Let's not mince words. The last five GOP-led Congresses were packs of lazy-worthless do-nothings, who did not even strive to advance any conservative agendas. (Other than trillion$ wars and ripoffs of the middle class.) Well, they do one other thing well.  Sabotage governance. Doing everything in their power to make “inferior government service” a self-fulfilled prophecy.

“In fiscal terms, there's no earthly reason for Congress to be stingy with Social Security's administrative budget. The money comes out of workers' payroll taxes and the system's other revenue, not from the general treasury. The Social Security Administration is one of the government’s most efficient agencies, with a core administrative budget of 0.7% of benefits.” -- writes Michael Hiltzik  in the Los Angeles Times. 

Number one on the goppers’ hit list, the IRS. Since no one will step up and defend that agency, despite it being absolutely essential that the nerdy accountants do their jobs well.  The chief beneficiaries of slashes in the IRS budget? Top 0.001 percenters. Of course.

The latest figures on developed economies show the United States is in far better shape than other countries. Of course the American consumer has hauled the world out of four big recessions (arguably six). But the fact that we are doing so again, after the calamitously huge one of 2007, speaks well for the vigor and dynamism of Americans… and poorly for all the cynics who keep moaning and spewing pessimism.

"Output has surpassed its pre-crisis peak by 10 percent, robust private-sector employment gains have sharply reduced unemployment, and fiscal sustainability has been largely restored,” reports Marilyn Geewax on NPR News. The upbeat assessment of the U.S. economy included these points: the unemployment rate of 4.7 percent is back to pre-recession levels; the gender wage gap is at a record low; inflation is down; the financial sector is more stable; and more people have health care insurance. Oh and although governments and corporations (especially the latter) have added debt, middle class Americans have continued to de-leverage. Household debt burdens have gone down.

(See how the infamous US federal deficit accelerates or decelerates with almost perfect correlation to which party occupies the White House.)

But the study also concluded many problems have worsened: income inequality has widened; gains in educational performance have slowed; entrepreneurship is down; productivity is declining; and public infrastructure spending is inadequate.  (Fault for the latter is clear: had the GOP Congress not blocked infrastructure bills, our recovery would have been much stronger and faster… which is of course why they blocked infrastructure spending.  Remember who to blame as 14,000 bridges teeter and corrode.)


locumranch said...

Assuming that Saint Adam Smith actually believed that "aristocracy and oligarchy have always been the great enemies of open and creative markets", then he most certainly could identify with neither the US Democrat party, nor the US Republican party, nor the Federal Reserve of Goldman-Sachs.

Paul451's statement was too true: "Melanie's speech sounded like rich-man's mockery of the unwashed masses," yet all Melanie did was copy Michelle Obama and the words & sentiments of the established US Democratic party.

This, then, is the subtext of Trump's message: The Establishment (whether Red or Blue) are a bunch of self-interested Elitists who (1) mouth hollow platitudes about noble servitude, (2) betray the democratic principles they claim serve and (3) enslave the hoi polloi to federal overlords, foreign entanglements and 'free' trade pacts that enrich only the Lord & Master elite.

Of course, Trump is also a putative member of this same Elite but, much like the criminal who is quick to recognise the criminality of others, this is the very reason why the horrifying extent of Establishment perfidy has become apparent to him.

What is NATO, after all, but a one-sided (unconsciable) obligation to protect foreign interests at US expense? I dare you to name one instance (since the time of the 'Marquis de Lafayette') when our so-called EU Allies have sacrificed their resources, their interests or their lives to defend US soil & sovereignty.

"Who cooked Adam Smith's Dinner?" is yet another example of the unconscionability of the modern social contract, one that condemns the masculine to the unilateral obligation of 'larder stocking' while simultaneously freeing the feminine from the drudgery of Relational Equity.

Again & again, US & EU Elites demand that their masculine citizens sacrifice their freedoms, their resources & their very lives to defend a despicable Financial, Abstract, Corporate or Ungrateful Other, yet this times appears to have passed as a once anethetised hoi polloi arise from their slumber, eager to regain the 'Inalienable Rights' that the Our Unquestionable Elites claim to hold in escrow by unenforcible social contract.


@Larry_H: Comparison asserts similarity & similarity asserts equivalence, so much so that the MSM's inclination to compare Melania's words, intent & appearance to First Lady Michelle O asserts (subconsciously, at least) that Melania is a First Lady equivalent.

Anonymous said...

Melania is no where equivalent to the classy Michelle Obama. Period.

As for the necessity of the IRS; Jon Oliver did a great segment on this very topic:


Acacia H. said...

Jim Wright has been up to his old tricks again. Flaming poo is not involved... but it might as well have been.

Dr. Brin, please keep any beverages away from your lips before you start reading. ;)

And yes, it might also have a small nod toward the ongoing RNC. ;)

Rob H.

Alfred Differ said...

@Paul SB: Designated Optimist? Okay. 8) I can face up to that.

It is always best to own one’s own quirks whether they qualify as disorders or not. Blaming someone for being what they ARE is one of the most fruitless endeavors I’ve ever seen, but blaming them for what they DO might (maybe) produce changes. Letting someone be what they are risks little until they act on what they are, so that’s where I think it is safest to draw the line.

Yes… you should get credit for your virtues. It is best if the reward is delivered socially by those who notice, but one must always keep a private score too. Justice (as a virtue) is part of the score and the scoring system. Giving others their due and receiving your own due correctly depends on all the scores we keep. You’ll know you are doing it right when the people around you are mostly content because the scores are about the same.

Honesty (a combination of Courage and Faith and Love) should be rewarded until it conflicts with Love and Hope. All the virtues are best achieved as a balance. Focus too much on one and it becomes a vice, right? Does this skirt make me look fat? No, dear, it doesn’t, but I prefer the one with the stripes that run the other way. (Mmm)

With my son, we don’t ignore any behaviors that fit virtues and especially reward those that look balanced. Courage, Faith (as Identity), Hope, Love, Justice, Temperance, and Prudence. All are needed and all should be scored up when we see someone delivering on them in a balanced way.

To bring this back to the topic, though, I learned to think of Adam Smith’s Wealth of Nations book as a demonstration of how trade-tested market behaviors are about Prudence, Justice, and a bit of the others. The Moral Sentiments book is mostly about Temperance, but mixes in Love and Prudence too. The virtue Smith went lightest on was Faith, yet we see it every day in the markets in its less transcendent form. Our market institutions are as virtuous as we choose them to be, and very often we choose them to be so even though economists rarely understand that.

Alfred Differ said...

@donzelion: Some of what you said in the last thread conflicts with my mental model of you, so we are getting somewhere. Allow me to paraphrase some of it back at you, ask a question or two, and I’ll fix my copy of you.

The idea is that a large number of market actors will act anti-socially, through schemes that are "mostly" legitimate, but become profitable only upon the occurrence of a number of bad actions.

I hear this as saying many market actors will act within the letter of the law or avoid going too far beyond it in a way that justifies the cost to us of convicting them. I’ve no doubt this is true of many, but I wonder if you think it is a few, a lot, or most of us. I’m not asking for an estimate of the fraction because that would require data. I’m more curious about your gut feel for this as that tells me something far more important. Do you feel the actions of most market participants are worthy of a sense of dignity both from their private estimates and socially as our support and approval? I’ve noted your self-deprecating humor regarding lawyers and modelled that as a form of humility, but I’m beginning to wonder if you actually believe members of your profession should not feel justified to the dignity they might claim for their work.

Regarding public sector actors not having the incentives private sector actors have, I’m going to disagree with you. I’ve seen far too much cross-of-the-border when it comes to hiring to believe there is much of a difference. Even with my current, well-behaved employer, our government customer has hired about 40% of our team and often our best while we’ve poached from among them too. How fair is a RFP evaluation process when one bidder has on staff some who once worked for the customer and the customer has on staff some who once worked for one of the bidders and possibly other bidders too? Incentives are there and are resisted only by people of high integrity.

I think your three needs for real income growth will face devils-in-the-details problems. Much of the betterments that we should reward come in the form of creative destruction. What one sees as an improvement, another sees as a poisoned well. Both might seek protection from government from the other. Think about US sugar beet farmers competing with Brazilian cane sugar. We protect a lot of our local interests because they are local voters, but would sugar imports really harm us? If two factions form, your option #2 for having people not get in the way of progress becomes political, thus hard to define. Overall, I’m inclined to agree with your recipe. In detail, I might not agree that a well is actually being poisoned. I wind up looking like a guy who wants to avoid taking action and then I get labeled as a laissez-faire supporter. The label is moderately accurate, but mostly because I adopt an innocent-until-proven-guilty attitude and want to be convinced by those who would use coercive power in the markets. Convince me, though, and I won’t want to shave the predator. I’ll want to behead them one by one.

Alfred Differ said...

@Lorraine & Jumper: I had the good fortune to try starting my own business before I said anything so dumb as to encourage everyone to try it. I wasn’t good at it the first time, the second time, or even the third time. I got better though. What I learned is to avoid starting them on my own. I fall prey to my own delusions and need the criticisms of others to correct me. CITOKATE applies in so many parts of our lives it is embarrassing to realize I failed to generalize the lesson so many times. 8)

As for Amway, I learned a couple of pyramid-like schemes to make sure I could identify them in the future. They aren’t about self-employment, though they sell them like they are. They are really about service and customer capture. Everyone should take a moment to learn the structures and then keep a clue bat nearby to deal with pushers of this kind of BS.

Alfred Differ said...

Not all the laissez-faire supporters view Adam Smith as a ruthless promotor of behaviors that focus strictly upon monetary gain. Take a moment to read McCloskey’s recent work (several, several moments actually since there are three tomes) and you’ll see she views him as the last of the virtue ethicists. She argues his economics wasn’t even remotely utilitarian or contractarian, but the people who came later tried to simplify the field and discover something akin to an equation of motion like we have in physics. If one optimizes only for prudence (the bottom line), one is squarely in the field of modern economics, but that’s not what Adam Smith urged.

Their drive for a utility function is the primary reason I think most economists are playing with theories that look more Ptolemaic than Newtonian to me. I get the motivation to discover a great State Function. Any physics student would once they understand the underpinning ideas for Thermodynamics. If F(P,V,T,…)=0 then dF near any point in the domain is a sum of partial derivatives multiplied by differentials in each respective variable. That’s a powerful tool! Economists try this very thing even if they call their quantities by strange names like ‘marginal price of labor’ (one of the terms in a bigger sum). The problem, though, is their underlying assumption can’t be correct and Adam Smith pointed out why. Our markets don’t optimize only on prudence, thus there is no ‘equation of motion’ through the state space that is going to match what we actually do until they include the other virtues that matter in our markets. In an analogous sense, they are playing with deferents and epicycles that get part of the motion correct, but require too many epicycles and their parameters to actually explain anything. They also self-limit their theoretical approach. They will NEVER explain the other motions because their perspective is trapped by an initial assumption. One Martian astronomer reporting back to our ancestors centuries ago could have revealed our ancient error. Economists need to reconsider Adam Smith much as astronomers needed Copernicus.

donzelion said...

@Dr. Brin - Hmmm...

"Democratic administrations always (always!) do better with the economy. Learn to brag about that."

The "always" there is certainly erroneous. Andrew Jackson sucked. James Buchanan must go down in history as the worst president of all time, for the economy or any other standard. Andrew Johnson, in addition to getting impeached, fought against desegregation and delayed the expansion of civil rights for a century, and ushered in a regime of corruption an protection for oligarchs who reclaimed power in the South. Grover Cleveland may not be to blame for the Panic of '93, but his economic record is mixed at best.

duncan cairncross said...

That article on paper checks was horrific
We (NZ) have been using direct banking - I just use your bank details to put money into your account for a long time now - over a decade
I have no idea where my cheque book is!

But the system seems a lot safer
I can put money INTO any account
But I need to log in using a password to take money OUT
And above a certain level the bank will send a verification number to a different device so there is a secondary check

You didn't address that to me but

The idea is that a large number of market actors will act anti-socially, through schemes that are "mostly" legitimate, but become profitable only upon the occurrence of a number of bad actions.

IMHO there are not very many people who act like that
BUT our current system rewards bad behavior such that such people are massively over-represented at the top
So they have an effect much much greater than their numbers

Re - modeling the economy

You are describing a "Scientific" approach,
Create a theory then derive a model
I agree that is not going to work

However most sensible economists use an "Engineering" approach
Look at the data
See patterns - draw conclusions from the patterns
THEN look at an underlying theory

This results in useful and usable "cheats" long before we have an actual understanding of what is going on

A prime example would be "Griffiths Crack Criteria"
It took a long time for the theory to catch up with the data but the actual numbers (maximum crack size) were incredibly useful and used for decades despite that

We are like Wegner - we can see that the "continents have moved" but we don't know the details

So in economics we can see that
"At the current conditions" if we do XXX then YYY will happen
So we SHOULD use those understandings to help trim our economy

donzelion said...

re infrastructure - Ah, the "Grow America Act" - Department of Transportation $478 billion over 6 years, which Republicans are "studying to death" most recently referring it to the Subcommittee on Research & Technology (within the House Science, Space & Technology committee - note that many of the Republicans in that committee are anti-evolution 'scientists').

Typically, infrastructure spending bills like this one are opposed by GOP congressmen until they can guarantee additional funds for their local pork AND guarantees of local businesses getting a chunk of the money. It's part of a rural/urban divide, where folks in "transit" cities fight to guarantee that a certain number of travelers into those districts get stuck there late at night and have to spend money eating/sleeping there. Currently, two Republican Congressmen are reviewing this act, and neither has made it much of a priority:

Dana Rohrabacher (of the 48th District). Anyone ever drive the I-5 Freeway north from San Diego? Notice where it tends to slow to a crawl? And in that space, you'll probably miss a number of private toll roads created in recent decades. That's the Rohrabacher approach to infrastructure.

Steve Knight (of the 25th District). Anyone ever drive the Grapevine north out of LA? Again, notice precisely where it slows down...

donzelion said...

@Duncan - I believe you were addressing one of my points:
"The idea is that a large number of market actors will act anti-socially, through schemes that are "mostly" legitimate, but become profitable only upon the occurrence of a number of bad actions."

It's not an ideal, but an anecdotal set of observations, matched with a corrolary that this sort of anti-social conduct will not be detected until AFTER a major crisis prompts scrutiny. Most fields do not approach risk in this manner, because engineers who build bridges that fail will seldom derive any reward from that strategy, but businessmen who build businesses that fail may well be rewarded if they can shift the costs of failure to someone else (and whether they successfully shift the cost or not, they can always pay to rehabilitate their reputations as 'successful' businessmen, while engineers are stuck with more objective demonstrations of their success/failure).

"IMHO there are not very many people who act like that"
Agreed. HOWEVER, IMHO, there are in fact many people who act like that in specific fields - especially in certain lines of business. The folks who understand the full picture of what they're actually up to tend to be at the top, and tend to prefer that their foot-soldiers and lieutenants are stupid and loyal, rather than competent.

David Brin said...

donzelion jeepers. To call the pre-Roosevelt democratic party the same party, or even pre LBJ is just conflating things, like proclaiming the Republicans can’t be racist because they freed the slaves!

Bullpuckey locum. All you got on HC is that she charged a lot for speeches for Goldman-Sachs and such. I do too, (not as much!) but that doesn’t make me let up on em. Prove it. Prove anything!

Fact, if HC and the dems get in big banks WILL lose power. There will be tighter regulations. Some may be broken up as too big to fail. The SEC and CFPB will be strengthened, as the GOP desperately ployed to weaken them. The IRS will be funded so that audits can return for the rich. THAT IS DIFFERENT!

You know this, yet spread the “they’re all the same” lie. An outright and direct and deliberate lie.

Proclaiming “hire a thief to catch a thief” is stupidity of truly cosmic proportions. Bankruptcies, ruined business partners, ruined seniors who bought condos from him, ruined “scholars” from Trump University… Really? On what basis can you claim that a crook who takes over a party of crooks and sexual predators will magically sort of “double-negative” his way into being our guiding moral light?

What’s especially pathetic is for the whimpering-whining feebs to proclaim themselves to be the archetypes of masculinity, when a real man is comfortable that he’s so strong that he can afford to appreciate feminine power. The stunning inability to see that whimpering is the very opposite of masculinity. And the contempt shown by women is probably much more about THAT, than any need to emasculate.

Tony Fisk said...

@duncan: your 'scientific' approach is the 'religious' approach. Scientists are over with the engineers.
...Except maybe cosmologists, but it sometimes seems they're verging on religion anyway.

donzelion said...

@Dr. Brin - donzelion jeepers. To call the pre-Roosevelt democratic party the same party, or even pre LBJ is just conflating things, like proclaiming the Republicans can’t be racist because they freed the slaves!

LOL, well you did write "always" - and it just ain't so. Democrats have bad blood in their past, but by and large, they've tried to answer for it, and more importantly, have tried to embrace methodologies that look at and respond to reality, rather than fantasy. Republicans get frustrated with the hand wringing - "Jesus gives us a free pass when we sin, so stop judging us, and just let us judge you! And all your gay friends!"

"Fact, if HC and the dems get in big banks WILL lose power."
This really depends on Congress. The Executive can do a few things, but Obama's pushed the envelope as far as it's likely to go without congressional change.

Hence the attention for these problems really needs to fixate upon the Republicans in Congress who have "studied" the "scientific" implications of the biggest infrastructure spending bill for about a year now - and done nothing. Small wonder: they tend to be hostile to biology, and to meteorology, so they'll doubtless object to engineering too when it's inconvenient.

Hillary's plan for the banks isn't necessarily to compel them to break up - merely to tax transactions, or rather, to charge a fee for exposing other people to risks once they reach a certain size. That is only feasible with Democrats controlling the House. Hence the effort to focus attention on the Congressional Republicans sitting planning witch hunts and letting their country crumble.

Jumper said...

I would hire an experienced cop to catch a thief. Just sayin'. Not a newbie or some e gotistical wheel-reinventor.

Alfred, I was far too savvy to get hooked into some Ponzi scheme nonsense. I wouldn't even buy the name of the biz and it didn't hurt. Basically a guy gave me his rolodex so as to not leave some old customers of his in the lurch. Good manners. That doesn't come along very often but I know how to catch a football.It's very nice to get paid for good work.

Alfred Differ said...

@Duncan: There isn’t much difference between the scientific and engineering approaches you describe. In physics, we go at problems both ways. It is often the case that the experimentalists are way ahead and their empirical theories work upward from the data. Only rarely does a theorist add value coming from the top down in a way that reorganizes the whole field, so any celebration of them tends to be far out of proportion. The giant’s shoulders upon whom they stand are the empiricists.

Thanks for bringing this back to elasticity theory, though. That’s one field the physicists who taught me mostly avoided. The mathematics needed to do it right quickly looks like differential geometry and they wanted to avoid that until a student wanted to learn General Relativity. Most physicists can’t handle the math I suppose. Ironically, my research advisor worked with geometric algebras for other problems, but I thought they’d be ideal for tackling elasticity. We had a trick other people shied away from. Our research group is no more, so the ideas probably won’t get developed, but now you’ve got me thinking about how we would have handled certain kinds of coordinate singularities and non-continuities. Fun. 8)

I know many think we are where Wegner was, but I honestly and sadly doubt it. The simple fact that we have price gouging laws demonstrates the problem. Remember that Ptolemaic models are pretty good at predicting the motion of the planets in our sky, yet they fail to explain anything because one can never know how many epicycles is enough. The fix required a perspective shift. It required a revolution in the sense Kuhn described.

Alfred Differ said...

@jumper: Then you are more experienced than I was. I led a life as a sheltered academic until I left. My first exposure to what I thought was a scam came when I was 31 years of age. It wasn’t a pyramid scheme, but it was bad enough. I was pulled in by the hype, but took my time thinking about it like an academic. My snail’s pace saved my savings and motivated me to learn more about sales. 8)

Maybe I’ve led a sheltered life, but most business opportunities I’ve chased have involved basically decent people. We didn’t always think so after the business failed, but as the anger fades the fog clears. Even for the guy running the scam I saw it could be argued that he DID help some people. The problem with him is he knew his success rate was low and still took thousands from each one. There are suckers born every minute, but hoping they will not be isn’t enough in my book.

Anyway, the point I was making long ago is not to accept slavery. Aristocratic bosses don’t deserve the support we give them when we give our labor too cheap. Seek self-employment or seek friends who have done it and need help. Seek family businesses where you know the people won’t be so rotten. Seek anything else. Move if necessary. Organize if necessary. Compete is even better! Basically, don’t let them get away with it.

Alfred Differ said...

@donzelion: Shifting costs onto creditors isn’t something I’m going to get all sniffly about. Shifting failures to shareholders is another ho-hum to me. Creditors and investors had better know what they are doing. Creditors are especially required to display temperance since they have little to gain on the upside (their interest margin) and everything to lose on the downside. When failures lead to shifts onto taxpayers, though, I’m tempted to buy a shotgun to make sure the spray gets all involved in allowing that to happen.

Unfortunately, I really don’t think anyone is smart enough to head off a crisis before it happens. Using engineering language as you do suggests you think we can reason out what will happen in advance. I sincerely doubt we can. What we CAN do is try to learn from the failures and plan to win the next, similar war. If the next battle is within the memories of those still alive, we have a chance of avoiding repeated failures. If not… well… we get to do the boom and bust thing again.

I strongly object to people trying to advocate policy that requires us to think out failure modes before they happen. I am FOR thinking out failure modes and doing what we can, but I’m AGAINST making policy for imagined failure modes not supported by history. For example, Orwell’s 1984 described a future world with obvious social failures. They weren’t strictly imagined, though, because they fit past understandings of tyrannical rule. Huxley’s Brave New World fit in a world where we were trying things like eugenics and conditioning. They imagined future failure modes, but relied upon previous ones. Even David’s fictional Holnists have a name we would all recognize in the real world.

I am deeply troubled when people think they can reason out what the rules should be before we have evidence of the failure modes. The 20th century has too many failures of imagination in that regard. So does the 19th century, but they weren’t as deadly. I shiver at the thought of what we might try in the 21st with our new knowledge and new tools. I’d rather stumble across them than imagine them incorrectly and be responsible for the deaths of billions. The socialists had a wonderful sounding idea and good intentions, yet they can be reasonably blamed for the deaths of about 80 million people and the prolonged suffering of billions.

Reason is a wonderful thing when used alongside Humility.
We do it rarely.

donzelion said...

@Alfred - "Shifting costs onto creditors isn’t something I’m going to get all sniffly about."

Much depends on the nature of the creditor: two sophisticated business persons involved in an arms length deal? Not great sympathy. Unborn generations who have to deal with the messes we make? Much more sympathy. So too with any others who did not participate in a trade, but have to clean up problems created by others.

"Unfortunately, I really don’t think anyone is smart enough to head off a crisis before it happens."
Agreed, but such prophetic powers aren't even necessary. We need only do our best to create and foster a healthy regime, which includes good regulation, but also, good exploration and investigation - and which is suspicious of the ability to force others to pay a price in a deal that they never participated in.

In all things, we can strive to make those who cause harm pay the price of the harm, and those who derive benefit to pay the price of that benefit: and we can assume that some number of those causing harm do so surreptitiously, beyond our means to detect them - so a risk-tax may be appropriate.

duncan cairncross said...

"I strongly object to people trying to advocate policy that requires us to think out failure modes before they happen."

But that is exactly what you do with an FMEA - Failure Modes and Effects Analysis !!

If you restricted yourself to actual failure you would take hundreds of years to reach a decent level of quality - and the market will NOT wait for you

If you don't think of how your device/process/procedure can stuff up and try to build in protections you are doomed to suffer those failures

"Unfortunately, I really don’t think anyone is smart enough to head off a crisis before it happens."

Well I think I AM smart enough to head off SOME of the crisis before they happen
Not ALL of them - but if I can stop some of them happening then I will have more time for the ones I missed
And yes I will have invested resources in preventing something that may never happen
But that is why an FMEA uses a number of factors in setting priorities

How serious would it be if it happens
How likely is it to happen
How likely am I to catch it if it happens

duncan cairncross said...

"Remember that Ptolemaic models are pretty good at predicting the motion of the planets in our sky, yet they fail to explain anything"

As an engineer or in days of old somebody who wanted to know when to when to plant I would take that in a shot

Knowing how the engine works is great but just knowing what the controls will do right now is actually damn useful

And that is where we are just now - to the engine analogy we know that more throttle gives more power
(Less inequality gives a better society)

We worry that there may be a time when we will be "over the top" - but so far reducing inequality has continued to yield better societies

If we had a good theory we could predict when we reach the optimum as it is we will have to suck it and see

But our "Ptolemaic model" is still a huge (YUGE) amount better than no model or refusing to do ANYTHING because we don't understand everything

Annabelle said...

You still up for that bet? What terms are you offering?

Anonymous said...

That NPR piece is party line for "burn Carbon like it's 1960"—of course yet more concrete and steel is necessary for yet more roads and bridges, as if, somehow, building just one more wafer-thin double crossover diamond sprawlway would vault America into the 21st and a half century (road deaths are up). Now, how exactly will the 47% of Americans who cannot pay a surprise $400 bill gain cheer on the news that apparently it is worse somewhere else? Hmm?

"entrepreneurship is down; productivity is declining"

Speak to those points, oh blinkered optimist.

Jumper said...

Doomers. God, I'm tired of 'em. Carsitter prefers to snipe rather than even be aware that all-electric solar powered transportation is in our grasp if we just reach out and grab it.

Deuxglass said...

Dr. Brin,

FDR hired a thief to catch thieves and it worked well. FDR hired Joe Kennedy as the first chairman of the SEC. When asked why he hired a crook, FDR replied “Takes one to catch one”. Kennedy was one of the most notorious Wall Street operators of the time and knew and used all the tricks to ripe off the public as well as other speculators. He was a crook but he set up the SEC and because of his knowledge was able to eliminate the unsavory practices and made the SEC feared until its teeth were pulled in the 2000’s. Of course he did it not because he wanted to become honest. He did it to clean up his legacy so that one of his kids could become president. He is not my favorite person but he did do an excellent job at the SEC.

Jumper said...

Joe Kennedy taught us everything we know. He just didn't teach us everything he knew.

donzelion said...

@Duncan re "Remember that Ptolemaic models are pretty good at predicting the motion of the planets in our sky, yet they fail to explain anything"

I wasn't critiquing Ptolemy with that comment, but efforts at prophesy (specifically Locum's projections about the downfall of Turkey, NATO, the EU, etc.). My point wasn't that the Ptolemaic model is useless, or that Locum was right or wrong - only that it's explanatory value is negligible, and the enterprise, harmful.

Any useful model should (1) grow from actual observations, and theories growing from those observations, (2) be capable of challenge by better observations and alternative theories. The problem with prophetic models is that they invite doing nothing - just waiting passively to see if the prophet is touched by divine wisdom.

"Less inequality gives a better society"
In general, yes, provided other rules also apply. Dystopias of perfect equality and dystopias of perfect inequality are easily constructed - but we've often endured millennia of the latter, and never experienced the former (save in remote colonies, religious cloisters, and similar isolated incidents). Reason suggests we ought to fear one more than the other, and deal with the greater threats before dickering over the lesser threats. But we can see risks of equality enforced in a certain way, so equality itself should not be the ends, so much as a symptom of success.

"We worry that there may be a time when we will be "over the top" - but so far reducing inequality has continued to yield better societies"
In general, agreed. But just as progressing from the Ptolemaic model required looking at the few objects in the sky that violated the model closely, and then abandoning all of its assumptions and trying anew - I'd look at the players in capitalism that violate the model - those who are not 'free riders' so much as 'anti-social predators' - and responding to a world where they come into existence so often, initially appear to be entrepreneurs, but in practice, are simply exploiting power and risk for their own benefit.

As there are many such people, a progressive tax rate is one (of many) measures that is appropriate to rein them in. As is a "risk tax" for exercises undertaken by the largest of the large, which can have very different implications than the same risks borne by smaller players who will have less capacity to shift the risks onto others.

LarryHart said...

r Brin:

Bullpuckey locum. All you got on HC is that she charged a lot for speeches for Goldman-Sachs and such. I do too, (not as much!) but that doesn’t make me let up on em. Prove it. Prove anything!

Fact, if HC and the dems get in big banks WILL lose power. There will be tighter regulations. Some may be broken up as too big to fail. The SEC and CFPB will be strengthened, as the GOP desperately ployed to weaken them. The IRS will be funded so that audits can return for the rich. THAT IS DIFFERENT!

You know this, yet spread the “they’re all the same” lie. An outright and direct and deliberate lie.

So far, the set of Republicans who have been at best lukewarm to Trump seem to be falling back on the position that it is necessary to vote for Trump because Hillary would be so much worse. Yet, Hillary is ackowledged as too hawkish--too willing to use armed force--for many Democrats, while Trump is threatening to abandon NATO commitments. Couldn't those Republicans whose biggest issue is the military find it better to hold their noses and vote for Hillary rather than to hold their noses and vote for Trump?

Also, from today's New York Times

He [Trump] even vowed “to do everything in my power to protect our L.G.B.T.Q. citizens from the violence and oppression of a hateful foreign ideology.’’ As the audience applauded, Mr. Trump made a deviation from his prepared text, observing: “I have to say, that as a Republican, it is so nice to hear you cheering for what I just said.”’

He makes it sound as if white American Christians have the backs of the LGBT community against a foreign threat from Islam, rather than that those Republicans (literally) don't know who to root for in that conflict. American gays don't need protection from Muslims nearly as much as they need protection from the Republican base.

Finally, the popular view of Ted Cruz is that in failing to endorse Trump, he broke a pledge that all of the candidates took at the beginning of the campaign. But wasn't that mainly a pledge not to run against the nominee? Cruz at least isn't doing that, whereas Trump likely would have had he lost the nomination.

David Fayon said...

Thank you for this analysis David.

Digital transformation of the bank is not only linked to blockchain and financial issues. Indeed, big data is also a key aspect. And for the poor people, they will have a credit card for free in exchange of the use of personal data (purchases, geolocalisation) by the banks and theirs ecosystems. It is the same way as data used by FANG and more specifically Facebook and Google.

And the Automated Clearing House, or ACH is going to be disrupted with companies such as Ripple.

Alfred Differ said...

@donzelion: If you want to lump unwilling or unknowing creditors into the definition, you’ll just muddy the waters. I’m with you regarding recognition of negative externalities and finding a way to price them back into the transactions, but I’m disinclined to people who bear the externalities as creditors. They weren’t part of voluntary transactions, thus no loan was given. It is more like thefts than loans.

I’m not just skeptical of would be prophets. I’m skeptical of people who think they can apply reason to abstract information about the past that would apply in the future. I accept that we have little choice but to try, though, and this explains why I support only incremental adjustments. I’d rather apply evolutionary methods to these guesses we make, so I see big adjustments as wild mutations. Most die.

In all things, we can strive to make those who cause harm pay the price of the harm, and those who derive benefit to pay the price of that benefit: and we can assume that some number of those causing harm do so surreptitiously, beyond our means to detect them - so a risk-tax may be appropriate.

With you in the first part. Confused by the second part. Why should those who derive benefit pay? To whom? Voluntary or coerced? If you are focused on making those who benefited from the harm pay a fine, the confusion is resolved with a small reservation. Defining ‘harm’ will be tricky. I’m opposed to a risk-tax, though. Sounds like punishment to be delivered to those who have the courage to innovate just to make sure we get the cheaters among them. No thanks. I’d rather suffer the cheaters until we find a way to target them better. I don’t like chemotherapy style solutions.

Alfred Differ said...

@Duncan: You are falling into an analogy trap I suspect.

If you restricted yourself to actual failure you would take hundreds of years to reach a decent level of quality - and the market will NOT wait for you

I assure you that if we had to wait hundreds of years for market failures to manifest, we wouldn’t be having this discussion. I’d be as happy as a pig in the mud. I don’t have to understand those kinds of failures because I’d be content to leaving them to my great-to-the-Nth grandchildren who will all have fantastic AI support to see them coming.

You needed to study those low probability failure modes because there was so many products out there that they were essentially guaranteed to occur. We don’t have that situation with our markets. There just aren’t that many markets. As for the transactions that ARE numerous, we’ve only been doing them for thousands of generations and the techniques are burying themselves into our genetics by now not to mention our civilizations. Trading is positively ancient and Evolution rules.

No one doubts you are smart. What I doubt is that you are prophetic. Apply the lessons of history in a CITOKATE environment, but don’t be shocked when I snicker at your ability to predict future social failure modes we’ve never seen. You should snicker at me too if I tried and thought they were good enough to adopt large-scale. I’ll snicker because a civilization isn’t an engine. It is vastly more complex and probably something we won’t grasp until AI’s millions of times larger than our minds are arrive on the scene. Until then, our safest path is to stumble along with incremental evolution and hope smart folks figure out little pieces well enough to invent local theories analogous to Griffith’s Crack Criteria.

There is a really good historical example of snicker worthy theories tossed about just as the Industrial Revolution was getting underway. Malthus made some dire predictions that if read to literally might have been taken as a message from him that we should all despair. Since Despair is a sin and the good Reverend didn’t want to promote that, he eased off in later editions of his work regarding populations and what we now call carrying capacities. Nowhere, though, did he imagine we’d do something that made his points moot. No one from his era did. You have to look to Thomas Macauley (historian) around when Marx published before you find someone who seems to get it that the world had changed. Many of his peers did not until later in the century and even then they misread it. Macauley was dismissed by many as overly optimistic, yet the evidence was in front of them all. They had theories about how things worked that said things couldn’t work that way. Theories are wonderful things when they work, but they are terrible chains when they don’t and you won’t realize how heavy they are until someone cuts them away. Evolution can do that if you let it.

Alfred Differ said...

@Duncan: An engineer stuck with a Ptolemaic model SHOULD accept it as useful, but when it fails to work over millennium length time spans, they should also accept that it is a kludge to be replaced at one’s earliest convenience. Addition of more epicycles to make it work should lead them to disbelief in its power to explain.

The more I learn economics, the more I am led to disbelief. Some of their theory looks to me like an Aether concept, but few people know the trap physicists fell into as our empirical knowledge of electromagnetism grew. More know of Ptolemy and the related trap Arab astronomers explored in detail centuries later. Astronomers had Copernicus, Brahe, and Kepler extract them from the trap. Physicists had Michaelson, Morley, and Einstein extract them from the trap. Who will extract the economists? The economy isn’t an engine. People don’t trade by contractarian or utilitarian paths we can find with partial differential equations on simplistic state functions. Add more dimensions to the state space if you like, but you are going to need a Vinge-style transcendent power to understand how it works. said...

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duncan cairncross said...

Hi Alfred

In terms of total understanding you are probably correct

In terms of understanding what happens when we push "this lever" you are completely wrong
Economists do have a very good handle on what will happen - there will be surprises BUT in most occasions we do know what will happen - and we have an idea about quantitative results as well

As far as Marx and Malthus are concerned they did a very good job of
"What will happen if this goes on"
Which effectively prevented that from happening - bit like 1984
The opposite of a Cassandra!

"As for the transactions that ARE numerous, we’ve only been doing them for thousands of generations and the techniques are burying themselves into our genetics by now not to mention our civilizations. Trading is positively ancient and Evolution rules."

Now this is nonsense!
Trading rules and methods have changed - "reciprocal gifting" is NOT derivative trading!
Trading methods can change very fast - a simple change in the rules alters trading methods completely
Even a change in the interpretation of the rules - like the changes to the Trust Busting rules - can cause massive change

A change in the rules (like the Anti-Trust) can cause changes that take decades to cause the failure
We change the rules far too fast for any cultural evolution

Hold that thought
There is Biological evolution - very slow
Cultural evolution - faster but still slow
And - Cultural "Engineering" - Where the rules are changed - Much much faster

Cultural "Engineering" - Engineering is too strong term
Legislatures change rules
We should be doing the FMEA work on those rule changes before implementing them

Paul SB said...


Designated Optimist is far from the worst label you can work under. You might be an incarnation of the Laughing Buddha : ] And if I keep posting in the wee hours, I'll end up as the Designated Eeyore. : [ An odd thought came to me this morning: if Shakespeare were in Purgatory, would his punishment be to write tragedies about mundane characters instead of the movers and shakers like Julius Caesar or Richard III? Could you imagine Shakespeare having to write the Tragedy of Pooh? "Begone with your gloom, oh small donkey! Show thy demon, Melancholia, to the door, and let him know he is welcome here no more! For your disposition casts a shadow upon all who dwell in the Wood of One Hundred Acres..."

Okay, that was weird.

"Blaming someone for being what they ARE is one of the most fruitless endeavors I’ve ever seen,"
- So few people get this! I spent a little time this afternoon going over the biological fiction of race with my summer school students. A few took an interest, but most just had their tongues waging. Of course, summer school doesn't exactly get the cream of the crop.

"Our market institutions are as virtuous as we choose them to be, and very often we choose them to be so even though economists rarely understand that."
- Markets are made of people, and to the extent that people are virtuous, they will be, too. Most of the economists miss this, being very cerebral people who are trying to quantitatively analyze qualitative data (typical where naïve scientism reigns over truly reflexive science). But the relative virtues of the people engaged in market activity is not fixed. It changes through time and from place to place. I would agree with Duncan that the majority are decent folk but management is heavy with self-serving bastards. But if self-serving bastards are a numerical minority, their positions of power within corporate hierarchies / bureaucracies gives them a disproportionate influence over our superstructure. This, in turn, propagates self-serving bastard memes, which leads increasing numbers of people buy the bullshit that we are all evil by nature and we should be allowed to do unto others as much as we can get away with.

Do you remember the TED Talk I linked to a couple years ago in which an economist was discussing the role of oxytocin in trust and relating it to Adam Smith? If not:

There is something about how you capitalize abstract nouns like Hope and Love that kind of worries me. It looks as if you are using them as prescribed by some guru's patented method and should have a little trademark symbol after them. I capitalize nouns at times for emphasis, generally when it is some technical term I don't expect most people to know and will have to explain, like Nucleus Accumbens. No offense intended, but it comes across as being kind of ... cult. : /

Paul SB said...

Did anyone notice in the very first comment on this thread that loci got his apostles mixed up? It's an easy enough mistake to make, and I suspect might be somewhat Freudian, since the other Paul has been a rival here longer than I have. I'm sure, though, that people noticed what he did. Quoting out of context to give something a very different meaning than was intended is a pretty old and underhanded method, especially among Bible thumpers. He suggested that Melania Trump's words were mockery, somehow meaning that Michelle Obama's words must have been equally mocking. In MO's case, she was simply expressing a commonplace value, and one that Democrats are often accused of not having. In MT's case it was mockery as a matter of context. Neither she nor her husband became wealthy by anything that could be called hard work, much less anything virtuous by most people's standards.

Paul SB said...

Dr. Brin,

In the main post you gave a little bit of advice to both Republicans and Libertarians, both of which seemed sound to my eyes. However, might have come across better if you also addressed Democrats? Given the context, maybe something about not being too disdainful of market-based solutions?

This morning I heard an interview with one of the few Republican legislators, a fellow from one of the Carolinas, though I don't recall the name, who does not deny climate science. His take is that most Republicans are dooming this country to misery by denying what is happening, but most Democrats merely insist on top-down, heavy-handed solutions. He suggested that there are market-based solutions we could be promoting, with a little bit of government assistance, that would get the job done. I don't often find Republicans worth listening to, but in this case I thought the idea has merit. If more Democrats would come at climate change from a tweak the market approach instead of the heavy-handed regulatory approach, they might get more adherents, and more votes.

David Brin said...

Except Paul that the moderate republican is rationalizing - telling himself that the Dems are 'just as bad" when in fact, many market oriented solutions have been offered by DNC type dems... and these languished from utter lack of interest or even willingness to chat, let alone negotiate, on the part of the congressional GOP.

It is these pretenses... that 'both sides are at fault ... that are the last ditch defense of moderate conservatives. Normally I would sigh and let them save face that way. But no. It has to stop. The madness.

Paul SB said...

Dr. Brin,

I am not disagreeing with you on this, not at all. I have never joined any political party, but you could call me a de facto Democrat. I get the impression that pre-Reagan the Democrats were not very effective, but have learned since then, while the Republicans have simply stagnated, building bigger walls and deeper trenches around the same old positions. I still don't think the Dems have a whole lot of solutions, and they have their blinders, too. But compared to the alternative of screaming, scapegoating xenophobes and Machiavellian thieves, I vote for Dems every time, all up and down the ticket. When I was younger I used to say it is better to have well-intentioned fools running the show than clever thieves. But between the quiet competence of the Clinton Administration and the raving lunacy of the Bush II years, it seems to me that well-intentioned foolishness is less the case among the Dems than it used to be. Bill Clinton's fiscally responsible policies - likewise Jerry Brown in California, who is doing a much better job second time around than his younger "Moonbeam" incarnation - convinced me that there is no equivalence between the two parties.

But as a writer you can come across as a little partisan. I have been here long enough to read - and agree with - your thoughts on the extreme left, and the fact that they are a minority in their party, while extremists are the vast majority on the right. But I can see how more moderate people on the right can start to feel alienated, which only drives them further to the right. Just a suggestion. You have been around longer than I have, and been to places I can hardly dream of. But even the wisest among us can find their speech getting channeled into familiar patterns.

Jumper said...

Clinton is a moderate Republican, so who can say what she's saying to herself?

David Brin said...

Jumper thanks for illustrating the other face-saving delusion. Name an issue - other than trade - in which it is even remotely true.

Even when waging war, dems and goppers have very distinctly different styles:

donzelion said...

@PaulSB - "Our market institutions are as virtuous as we choose them to be..."

I don't like this line of reasoning, because "we" may choose but still be disproportionately affected by a handful who choose otherwise, and we can be quite confident that some will indeed choose otherwise.

Imagine a freeway, in which 1 driver out of 10,000 gets ahead of the traffic, stops his car on the freeway, and throws out blockades. Traffic piles up behind him, and he hires 4-5 others to collect a fee for "road clearance," splitting the fee with them.

Most people are too far behind the lead driver to realize that the freeway was clear ahead - so they recognize they are stuck, and pay a toll hoping that the road will be cleared so they can move on. The other 9,999 drivers may be quite virtuous, but they'll not be able to move that car unless a handful in the front relay a message back to them, and they opt to cooperate in clearing the path.

That's our market - and our political order as well (as if the two were really separated). The guy out in front may claim he got there through his "hard work" and is thus entitled to a "road clearance fee" for the service he renders. It's quite likely that there will be disputes among the people in the front, holding everyone else back - but ultimately, the 9,999 will only benefit if they DISTRUST one in the front and cooperate in removing the blockade.

David Brin said...



Jumper said...

I meant because of moving the "Overton window" a Clinton presidency would resemble an Eisenhower admin. were Ike's up to date, as I'm sure he would be. It was a joke. I'd sure prefer an Ike to WWZ Trump, and prefer Clinton for similar obvious reasons.

David Brin said...

Jumper, sure, Ike was a slightly-more-pro-business Rooseveltean. Because the GOP masters were desperate and wanted to win, at all costs. Still, they extorted his taking Nixon as VP, a crime against history. While Nixon did also continue some Rooseveltean trends - his main focus was to wage political war, sending us down this path.