Culture

It’s no longer the economy, but we are still stupid

Nick Cowen Culture, Economics, Links, Politics , , , , ,

‘Motivated Reasoning, Public Opinion, and Presidential Approval‘, an interesting new paper forthcoming in the journal Political Behavior (summarized here), by Kathleen M. Donovan, Paul M. Kellstedt, Ellen M. Key, Matthew J. Lebo finds that support for sitting presidents has become increasingly misaligned with national economic expectations. Rather than being a sign of voters realizing that presidents play little role determining economic performance, they attribute this to increased partisan polarization.

I think this is a compelling account. All I would add is a potential causal mechanism. My current favorite dimensions for analyzing democratic trends in the developed world is demography. Voters are ageing. When retired, they tend to have much less direct involvement with the productive economy than when they were working. On average, the elderly are quite rich and living off entitlements they have acquired during their working lives. So they are both less reliant on current economic opportunities and less knowledgeable of them. This means their personal costs of partisanship, relative to good policy, is lower than it used to be. And this is what lets all the culture-war nonsense creep into people’s decision functions.

Bolsonaro, Carnaval, Golden Shower, Reason

Bruno Gonçalves Rosi Culture, Current Events , , , , , , , ,

Sao Paulo. Carnival. Two men climb on a newsstand, bus stop, or truck. The video is not so clear. What is clear is that they are half-naked. What they do next is pretty graphic, and I don’t feel comfortable describing it here. Bolsonaro, the president of Brazil, makes a tweet about what happened. Several websites, including Reason, criticize Bolsonaro.

The fact that several sites on the left criticize Bolsonaro does not surprise me, but I am disappointed with Reason. But let’s get some facts. Carnival is indeed a traditional party in Brazil, at least in some cities like Rio de Janeiro and Salvador. But for many people, Carnival is just a cultural imposition. Maybe the editors of Reason do not even know it, but Carnival is an official holiday. That is: even if you want to work, you are duly prohibited from doing so. Another thing that the editors of Reason forgot to report is that Carnival is largely sustained with public money. That is: like you or not, the party is partially sustained with your money raised through taxes. Another part of the money comes from organized crime. Yes. Carnival is partially supported by the state and partly by organized crime. Only a minimal part of the money is voluntarily given away by people interested in attending the party. That is: for a good anarcho-capitalist, Carnival is almost completely sustained by organized crime.

I grew up in a neighborhood in Rio de Janeiro where the carnival blocks start early and end late. Several streets are closed. My right to come and go is severely impaired. Even if I close all the windows (while it is 100º F outside), the noise of the music still prevents me from even thinking. I always think about people who are sick and need to rest. Or that they are elderly. Or families with small children. Carnival is the least libertarian party I can imagine: your participation is not voluntary. In fact, one of the most famous Carnival songs has very telling lyrics: “who does not like samba, good people are not. It’s bad in the head or sick on the foot.” To be clear: if you do not like samba you have a taste different from mine and we will respect ourselves? Not! You’re a bad person!

So, it is against this party that Jair Bolsonaro manifested himself. I’m proud of my president. One thing that Bolsonaro certainly did not do was try to be populist. If he wanted to be a populist, he would have done what all the presidents before him did: sponsor the bread and circus. By stating as he did, Bolsonaro proved that it is anything but populist. Reason has no idea what is going on in Brazil.

As a good libertarian I will say: if you like samba, you have a bad musical taste. Anyway, it’s your taste, not mine. But if you support Carnaval, you are attending a party that harms millions of people. You are not really thinking about your neighbor. And if you call yourself a libertarian and oppose Bolsonaro on this, something is very wrong. Maybe you just have no idea what is going on in Brazil.

Maybe you’re not that libertarian.

Afternoon Tea: Minerva or Pallas Athena (1898)

Brandon Christensen Culture , , , , , ,
NOL art Klimt minerva or pallas athena
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From my main man Gustav Klimt.

Afternoon Tea: The Scapegoat (1854)

Brandon Christensen Culture , , , ,
NOL art Holman Hunt the scapegoat
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Man, I like this one. It was painted by William Holman Hunt, an English painter. Hunt belonged to a school of art that called itself the Pre-Raphaelite Brotherhood. Here is a wiki on the Brotherhood.

Afternoon Tea: The Women of Algiers in their Apartment (1834)

Brandon Christensen Culture , , , ,

From Eugene Delacroix, as requested by Jacques Delacroix (no relation):

nol art delacroix the women of algiers 1834
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Afternoon Tea: Diomedes Devoured by his Horses (1866)

Brandon Christensen Culture , , , , ,
NOL art Moreau diomedes devoured by his horses 1866
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This one is just plain crazy, and it’s by the French painter Gustave Moreau. Here is a wiki on the story of Diomedes, by the way. And here is Barry Stocker on ancient Greek thought.

 

Afternoon Tea: Urvashi and Pururavas (unknown)

Brandon Christensen Culture , , , , , ,

From the great Malayi (India) painter Raja Rami Varma:

NOL art Varma urvashi and pururavas
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Varma was one of the first artists in colonial India to blend Western art with Indian traditions. Urvashi and Pururavas is an old Hindu love legend (wiki). And here is a wiki on Varma.

Here is yet another wiki, on the Malayali.

Afternoon Tea: Ahasver (1910)

Brandon Christensen Culture , , , ,
NOL art Hodler ahasver 1910
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This beauty is by Ferdinand Hodler, a Swiss painter. Rest assured, there’ll be more from him.

Afternoon Tea: Isaac Newton (1795)

Brandon Christensen Culture , , , ,

From the British artist and poet William Blake:

NOL art Blake newton 1795
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I’ve never been a huge fan of English art, but Blake is an obvious exception to the rule when it comes to art out of England. If you expand British art to include its imperial domains, then British art is spectacular, but as for England itself, meh. (William Blake excepted, of course.)

The Paradox of Prediction

Joakim Book Culture, Economics , , , , ,

In one of famous investor Howard Marks’ memos to clients of Oaktree Capital, the eccentric and successful fund manager hits on an interesting aspect of prediction markets and probability alike. In 1993 Marks wrote:

Being ‘right’ doesn’t lead to superior performance if the consensus forecast is also right. […] Extreme predictions are rarely right, but they’re the ones that make you big money.

Let’s unpack this.

In economics, the recent past is often a good indicator for the present: if GDP growth was 3% last quarter, it is likely around 3% the next quarter as well. Similarly, since CPI growth was 2.4% last year and 2.1% the year before, a reasonable forecast for CPI growth for 2019 is north of 2%.

If you forecast extrapolation like this, you’d be right most of the time – but you won’t make any money, neither in betting markets nor financial markets. That is, Marks explains, because the consensus among forecasters are also hoovering around extrapolations from the recent past (give or take some), and so buyers and sellers in these markets price the assets accordingly. We don’t have to go as far as the semi-strong versions of the Efficient Market Hypothesis which claim that the best guesses of all publicly available information is already incorporated into the prices of securities, but the tendency is the same.

  • if you forecasted 5% GDP growth when most everyone else forecasted 3%, and the S&P500 increased by say 50% when everyone estimated +5%, you presumably made a lot more money than most through, say, higher S&P500 exposure or insane bullish leverage.
  • If you forecasted -5% GDP growth when most everyone else forecasted 3%, and the S&P500 fell 40% when everyone estimated +5%, you presumably made a lot more money than most through staying out out S&P500 entirely (holding cash, bonds or gold etc).

But if you look at all the forecasts over time by people who predicted radically divergent outcomes, you’ll find that they quite frequently predict radically divergent outcomes – and so they would be spectacularly wrong most of the time since extrapolation is usually correct. But occasionally they do get it right. In hammering the point home, Marks says:

the fact that he was right once doesn’t tell you anything. The views of that forecaster would not be of any value to you unless he was right consistently. And nobody is right consistently in making deviant forecasts.

The forecasts that do make you serious money are those that radically deviate from the extrapolated past and/or current consensus. Once in a while – call it shocks, bubble mania or creative destruction – something large happens, and the real world outcomes land pretty far from the consensus predictions. If your forecast led you to act accordingly, and you happened to be right, you stand the make a lot of money:

Predicting future development of markets thus put us in an interesting position: the high-probability forecasts of extrapolated recent past are fairly useless, since they cannot make an investor any money; the low-probability forecasts of radically deviant change can make you money, but there is no way to identify them among the quacks, charlatans, and permabears. Indeed, the kind of people who accurately call radically deviant outcomes are the ones who frequently make such radically deviant projections and whose track record of accurately forecasting the future are therefore close to zero.

Provocatively enough, Marks concludes that forecasting is not valuable, but I think the bigger lesson applies in a wider intellectual sense to everyone claiming to have predicted certain events (market collapses, financial crises etc).

No, you didn’t. You’re a consistently bullish over-optimist, a consistent doomsday sayer, or you got lucky; correctly calling 1 outcome out of 647 attempts is not indicative of your forecasting skills; correctly calling 1 outcome on 1 attempt is called ‘luck’, even if it seems like an impressive feat. Indeed, once we realize that there are literally thousands of people doing that all the time, ex post there will invariably be somebody who *predicted* it.

Stay skeptical.

Afternoon Tea: Female Organ Player (1885)

Brandon Christensen Culture , , , ,
NOL art Klimt female organ player 1885
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From Gustav Klimt, still my favorite artist of all time…

The Gandalf Test

Ethan Blevins Books, Culture, Liberty, Politics , , , ,

The two dominant American political parties have one defining trait in common, and it’s the trait that makes them both undeserving to hold the power they seek to wield. Both parties fail the Gandalf test.

I derive the Gandalf test from one of my favorite conversations in the Lord of the Rings. Gandalf pays a visit to Frodo Baggins after concluding that Bilbo’s old ring is in fact the One Ring–the single most dangerous and powerful object in Middle-earth. Once the full enormity of the ring dawns on Frodo, he tries to thrust it upon Gandalf. Gandalf flatly refuses. “With that power I should have power too great and terrible.” He recognized that he cannot embrace so much power even though he would want to do good with it. “Yet the way of the Ring to my heart is by pity, pity for weakness and the desire of strength to do good. Do not tempt me!”

The Gandalf test is simple: a righteous cause and a genuine desire to save the world do not qualify anyone for the exercise of extensive unilateral power. The Republican and Democratic Parties both have recently failed this test, and not for the first time. On one side, President Trump has turned to emergency powers to barge through constitutional barriers, so convinced he is that his cause is just. On the other side, the Green New Deal proposes to remake the United States economy. We tend to too often squabble over the merits of these policies instead of stepping back to apply the Gandalf test. Even if the policies themselves are good ones, even urgent ones, we must ask whether any person or cadre should wield the extraordinary power to put them into action. The “desire of strength to do good” is not enough.

A clear message of Gandalf’s and the Lord of the Rings generally is that progress toward the good and worthy comes through the everyday courage and goodness of ordinary people, not a few great souls on gilded thrones. Elsewhere, Gandalf points out: “Saruman believes it is only great power that can hold evil in check, but that is not what I have found. It is the small everyday deeds of ordinary folk that keeps the darkness at bay.” And in the Return of the King: “It is not our part to master all the tides of the world, but to do what is in us for the succour of those years wherein we are set, uprooting the evil in the fields that we know, so that those who live after may have clean earth to till. What weather they shall have is not ours to rule.” What a wonderfully apt response to the Green New Deal’s attempt to rule with an iron fist today in order to literally rule the weather that others might have tomorrow. That kind of hubris is poison to a republic.

We need to subject our leaders to the Gandalf test. We need to know if they are the type to vainly “master all the tides of the world,” or whether they will lead in humility by quietly empowering the everyday deeds of everyday people. If they can’t pass the test, I couldn’t care less whether they’re proposing a wall, a tax hike, or a clean energy revolution.

Afternoon Tea: White Crucifixion (1938)

Brandon Christensen Culture , , , , ,

From the esteemed Jewish French-Belarusian artist (and one of my personal favorites), Marc Chagall:

nol art chagall white crucifixion 1938
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Afternoon Tea: Last Supper (1903)

Brandon Christensen Culture , , , ,

From the Russian painter Ilya Repin:

nol art repin last supper 1903
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This is a bit different than the traditional “last supper” paintings we are used to, at least here in the States.

Afternoon Tea: Christ on the Sea of Galilee (1854)

Brandon Christensen Culture , , , ,

From Eugene Delacroix, as requested by Jacques Delacroix:

nol art delacroix christ on the sea of galilee 1854
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I could stare at this for hours…