Dunbar’s Number

One of my favorite ideas in social science is Dunbar’s number: the cognitive limit to the number of relationships our brains can handle. It’s something like 150. That’s about the number of people our ancestors might have shared their tribe with 20,000 years ago.

Our sense of social propriety is tuned to dealing with people within our circle. Economics often seems counter-intuitive because it’s largely about how to interact with people outside that circle.

Here’s the example I use in class:

You’ve got a date tonight. You stop at a florist to pick out a bouquet and start wondering if maybe chocolate would be a better gift. Dark chocolate or milk? Or maybe something else. You think back to your economics classes and realize that if your date had $20 cash, they could buy this bouquet if it’s what they really wanted, or chocolates if that’s preferred. So when you knock on the door, instead of offering a bouquet, you hold out a crisp $20 bill.

What happens next?

If you aren’t dating an economist, you get the door slammed in your face.

So you run back to the florist, buy the flowers, run back, and nobody answers the door. Your date probably went to the bar with friends. You call a cab. When it pulls up to your door, the fare is $20. You just spent $20 on these flowers. You try to pay for your fare with the flowers.

What happens next?

The driver refuses and insists on cash.

So what’s better, flowers or cash? Is your date irrational, or the cab driver? Neither. Both are rational within the context they’re acting in. The driver is a stranger and market rules are appropriate. In this context, $20 is worth more than $20 worth of flowers. Maybe the cab driver wants flowers, but cash gives them the option to buy whatever best meets their needs.

You and your date were trying to cease being strangers. The cab driver is outside of Dunbar’s number, but your date would have (could have) been inside that inner circle. At that point, the signaling value of the flowers would trump the economic value of the cash.

Economics has a lot to tell us about how to behave with those inside and outside of our Dunbar’s number. But that dividing line calls for different rules on either side: the rules of family and neighbors on one side, and the rules of the market on the other.

I’m thinking about Dunbar’s number because I just finished a recent episode of EconTalk where they talked about a classic example from behavioral economics: An Israeli daycare, tired of late pickups started charging fines to late parents. Ironically, this resulted in an increase in late pickups that persisted even when the policy was reversed.

The daycare example is often trotted out to say “see! Sometimes adding an incentive backfires! Raising the price from $0 to $x increased the quantity of lateness demanded. People are irrational!” Of course it only takes about 5 seconds of thinking to realize that we aren’t holding all else equal here. As usual, there’s a lot of interesting stuff hidden in the ceteris paribus assumption.

The more sophisticated interpretation of this example is that attaching a price shifted parent’s interpretations of the norms. In my language: the inclusion of money in that interaction shifted the rules of behavior from those of neighbors to those of strangers.

(Roberts brought up an important point I hadn’t considered with this example: the price was too low. Prices communicate information about how onerous it is to produce a product, and that price told parents “it’s not a big deal if you’re late…”)

More generally, when we’re looking at some social scientific question, Dunbar’s number demarcates a point separating the assumptions we can make about sharing and monitoring–whether it’s about the practicability of communism (the real kind, not the kind with mass murder), corporate bureaucracy and firm size, or the tenability of informal institutions.


  1. The plight of the political convert Corey Robin, New Yorker
  2. Fine grain futarchy zoning via Harberger taxes Robin Hanson, Overcoming Bias
  3. What happens to cognitive diversity when everyone is more WEIRD? Kensy Cooperrider, Aeon
  4. StarCraft is a deep, complicated war strategy game. Google’s AlphaStar AI crushed it. Kelsey Piper, Vox

“Just Leave Me Alone Goddammit!”*

The basic argument I want to make is that we’ve been thinking about labor and human capital imprecisely,** and we would do better to think of labor as the selective application of attention, and habit (which economizes on attention) as the basic essence of human capital.


The kernel of this idea was planted when I read Pragmatic Thinking and Learning a few years ago. An important point it makes is that whenever our work is interrupted it takes something like 15 minutes to get back to work. Mental work is like barbecuing (or what the uninitiated erroneously call “smoking”). After 8 hours of cooking your guests are impatient (and drunk) and want you to check the meat. So you open up the barbecue and a plume of smoke billows out. You put in a meat thermometer and sure enough, the meat isn’t done. But now it’s going to take another 15 minutes for enough to smoke to build up to get the process moving again. 20 minutes later people want you to check again. (And that’s why our parties back in San Jose so often dragged on so long.) Showing up to work for 8 hours a day isn’t sufficient for getting your work done; sometimes you just need your boss to leave you alone long enough for you to focus deeply enough to solve the problem you’re facing.

Or we could think of work like juggling. Working on some difficult problem, you’ve got a few pieces of mental material in the air. When someone knocks on your door (or you take notice of an email notification on your phone) you drop the balls. Getting them going again takes some effort, so even a one second interruption sets you back a few minutes. Those of us who work at desks are familiar with how difficult thinking can be. Managing our attention takes effort. But with practice we can get better at coping with distractions and skipping the easy, but unproductive paths offered to us.

And what about grunt work? There’s less attention necessary (perhaps rhythm serves a role in maintaining that minimal bit of attention), but nobody gets paid for not doing what they’re told. Your job is to keep applying effort in the appropriate way. The only human capital you really need is what is necessary to get out of bed and get to work every day.

Habit Capital

People who smoke cigarettes, they say “You don’t know how hard it is to quit smoking.” Yes I do. It’s as hard as it is to start flossing.

Mitch Hedberg

Habit offers a means of economizing on attention. Instead of using up our mental capacity to decide to brush my teeth every day, I just do it automatically. Flossing is not so easy… except that I was able to make it a habit by piggybacking it on an existing habit.

Many of the skills we have are built on a collection of complex little habits, whether it’s muscle memory (you must watch the video above), understanding how to read graphs, or bearing in mind that everything has an opportunity cost.

(Obviously) getting a college degree is not the same as accumulating human capital. What college does (we hope) is inculcate students with critical thinking habits and some basic knowledge deemed necessary or particularly helpful for navigating the world. Learning on the job is similarly about providing workers with habits, and both positive and normative knowledge (i.e. factual knowledge and norms/beliefs/corporate culture). Growing up is about building up human capital largely in the form of internalized norms (moral habits). Habits are everywhere and they’re at the core of what we mean when we use the term human capital.

Habit capital allow us to direct our attention to critical areas in the same way physical capital allows us to leverage (and ultimately replace) our physical effort. By establishing habits we can get certain things done (teeth brushed, books read, etc.) while conserving attention. This takes more attention upfront just as physical capital requires upfront investment.


Economists generally don’t think much about bombs as an investment. Bombs require foregoing current consumption, but once they’re made, they’re intended to get a negative return by destroying something of value. Physical anticapital, as a social scientific idea, falls primarily in the domain of International Relations. Which isn’t to say economists haven’t thought about investments that destroy value. The idea of rent seeking is an important one, but it’s one that has been rationalized.

There’s probably not much to gain by thinking about rent seeking as investment in anticapital.*** But we can bring bad habits out of the purview of irrationality and bring it into the warm, rational glow of economics with the concept of human anticapital.

Just like in biological evolution, we’re satisficing, not optimizing. Habits may initially be adaptive and turn bad as circumstances change. We should expect a tendency towards “good” habits–and how those habits propagate is certainly an interesting question–but we should also expect the odd bizarre byproduct, misfire, and obsolete habits to emerge.

“We are still very close to our ancestors who roamed the savannah. The formation of our beliefs is fraught with superstitions–even today (I might say, especially today). Just as one day some primitive tribeman scratched his nose, saw rain falling, and developed an elaborate method of scratching his nose to bring on the much-needed rain, we link economic prosperity to some rate cut by the Federal Reserve Board, or the success of a company with the appointment of the new president “at the helm.”

Nassim Taleb


Attention matters more than time. Habit economizes on attention. Mental work involves applying mental tools to particular problems and habit allows us to do so more or less automatically. In other words, habit is human capital.****

*That’s one possible title for the next paper I want to write. A more boring but descriptive possibility is “Habit Capital.” Another with more regional flavor is “Hey! I’m Working Here!” Maybe I’m not very good at titles…

**This follows in a similar vein as my entrepreneurship research which basically boils down to: entrepreneurship theory is good, but our empirical measures suck.

***Although I should mention that thinking about rates of depreciation will surely shed light on rent seeking questions.

****I’ll leave it for the comments to sort out whether it’s the only sort of human capital. Maybe you can also help me sort out how to wrap belief, understanding, and learning into this view.

Global Warming, Soot Pollution, Mayor Bloomberg, the Paris Conference (forthcoming): So Confusing, So Confused!

So many inane things have been said about climate change by silly unqualified sources and so many others by dishonest qualified sources that it’s hard to keep separating the wheat from the shaft (Ah, ah!)

On the Monday June 29th of the Wall Street Journal, former Mayor Bloomberg of New York City delivered himself of advice about the forthcoming 2015 fall United Nations conference on climate change. It will take place in Paris. Right there, you know they are not serious. At any one time, half the delegates will be seeing the sights, or tasting the flavors.

Below is the excerpt that flummoxed me. I am retired, I have the time to be flummoxed. Other readers may not have had the time or the peace of mind to notice. This is for them.

“…The Paris conference has already proven successful in one respect: It has pushed heads of state to prioritize climate action” (Bolding mine.)

And further down:

“Whether they live in a capitalist or communist society [sic], people want to breathe clean air. They know that air fouled with carbon pollution causes death and disease,….” (Bolding mine, again.)

Wait a minute, I have been told a thousand times if I have been told once that CO2 is the primary cause of “climate change”! I flunked high school physics (not bragging, just admitting the facts) but I am sure that CO2 does not cause disease. And, I remember from a diving class long ago that it does not even cause death except insofar as it physically replaces oxygen. That’s hard to do in your lungs, by the way. It takes practice. Accordingly, suicide by CO2 is extremely rare!

So, is Mr Bloomberg referring to another kind of carbon pollution? Is there a faction of the Warmist Movement that’s on the edge of admitting that mere CO2 is just plant food, as we believed before the Apocalypse began? I ask because if the real enemy is either carbon monoxide or any of the visible sooty components that result from burning coal, I am not sure which side I am on anymore. Speak of agonizing re-appraisal!

I don’t know which side to take because I am squarely against both carbon monoxide and particulate (soot) pollution. The only people who are in favor of carbon monoxide are people who failed physics even worse than I did and confuse this deadly gas with the innocuous plant food CO2. As for particle pollution, the only ones who would say a single good thing about it, don’t. They are power industry spokesmen and other users of coal. They are not even arguing that they are good; they asked for more time to clean up their dirty act. The US Supreme Court declared last week that they were actually entitled to more time.

I remember well breathing the heavy smog in Paris in the fifties; I remember seeing pictures of the even worse smog in London. I remember the largely automobile-based smog in LA in the sixties. All these cities cleaned up their act. They did it to a large extent under demanding legislation. That legislation was not very controversial because it did not rest on mysterious, esoteric, contorted, and ever-changing science largely propagated by the incompetent, the irrepressibly stupid, and those who leave political judgment to experts. Besides, the application of the legislation walked in lockstep with perceptible progress. The air in Paris cleaned up in a few years during my childhood even while the population grew. The air in LA improved quickly after unleaded gasoline was introduced, etc. I hope someone will correct me if I am wrong but I don’t think the research involved or its presentation comprised crude fraud as in the “hockey stick” scandal about global warming.

If they were concerned with CO1 (mono) or with particle pollution, there would be no struggle, or little resistance. They invoke CO2 threat because cleaning up carbon is not going to give them the de-industrialization and the government control they crave. Think it through.

Incidentally, we wouldn’t even have this discussion if the US had continued building nuclear power plants twenty years ago. I mean, like France, where absolutely nothing dangerous happened. Like Japan where the worst happened in Fukushima and nothing happened. Nuclear energy releases no carbon particles, no carbon monoxide, and negligible amounts of CO2. Want to save the planet or not?

So, is mayor Bloomberg calling for UN conference in Paris re-dedicated to better breathing rather than to the never-ending struggle against “climate change’? Is he honestly confused? (Wouldn’t be the first time.*) Is he a dupe or a fiendish accomplice? Is he aiming for a typical “liberal Republican” middle course between truth and falsehood? Or, he is pushing forward a genuine Trojan Horse to finally reduce the already tottering, rickety citadel of misrepresentations, exaggerations, conflicting truths, bad measurements, worse logic, unscientific reasoning, an outright lies of Warmism?

* I am not casting the first stone, in this case. I demonstrated that the UN “Summary” for officials and political decision-makers was incomprehensible.

Morons of the World Unite!

In 1848, before he really had really learned to think, Karl Marx emitted the famous call, “Workers of the World Unite!” That was in the “Communist Manifesto,” communism lite for those who move their lips when they read. The workers of the world never united. They continued enthusiastically to eviscerate one another in war as before. The few times the workers actually came together, mostly but not exclusively on a national basis, they brought tyrants to power. The Communist tyrants proceeded to impoverish them like never before. They also killed many of them, both on purpose and through gross negligence. The remaining Communist countries: China (not communist at all, an amazingly successful Mafia state), North Korea, a deadly operetta permanently set in the fifties, Cuba, barely kept afloat by generous remittances from Cuban emigrants. Incidentally, the open-handed cousins from America mostly reached Florida with the shirts on their backs. They became rich as waiters and parking attendants in Miami while their doctor relatives back in Cuba seldom had enough to eat. You can’t have everything, a socialist paradise and fried chicken on demand.

Since 1848, in the midst of one socialist/communist debacle after another, and unrelated to them, something appalling has happened: Mr Marx’s “workers” evaporated. I mean that it’s completely clear that Marx referred to industrial workers specifically, what we would call today “blue collar” workers. He explicitly did not mean the poor in a general way. On the contrary, he wrote scathing words about the lack of social discipline of the lumpenproletariat, the “poor in rags.” As for the peasantry, still quite numerous in Marx’s day, his followers had to perform intellectual acrobatics to present them as other than natural enemies of the Revolution. Stalin himself spoke eloquently of the “non-antagonistic contradictions” between the working class and the peasantry. That was after he had starved to death millions of the latter to feed the former. He said he had good reasons to do so. (Allegedly “scientific” socialism brought to the world deadly pedantry, a trait seldom before encountered but all around us again as I write. See below.) Anyway, what I wanted to say before I got waylaid is that in the century and half after Marx, the “workers” mostly vanished from advanced countries. In small part, it was because primitive manufacturing moved to poor countries such as China. To an overwhelming extent, it was because of technological progress.: One semi-literate guy half conked out on grass sitting at a machine makes more nails in one day than ten master iron workers made in one month when Marx was writing the Communist Manifesto. (I am sure of this because I watch “How Things Are Made” on TV).

Now, as I have said, I am spending a lot of time at the beach these days, near downtown Santa Cruz. I have almost become one of the Moms there. Speaking of which, a Mom with two little kids addresses me the other day. I am pretty sure she is not hitting on my although there is a dearth of functional males around. I think she is just bored or worried. She is old enough – in her mid thirties- to be used to defer to male authority on how things work. She comments on the fact that the beach where her children and my own granddaughter wade in the water is posted for high E-coli content.* This happens every summer on that beach. (See my moving essay on the topic.) To make a long story short, there are fish in the water and these attract seabirds that do what they must do after they eat. And then, there are the hundred or so resident sea lions. I re-assure the Mom that probably none of these E-coli are of human origin. After two years of drought, there is no running surface water anywhere near the beach. There is no conceivable way for human feces to reach that particular beach, with two exceptions. First, it’s possible to imagine that some homeless, caught short would deposit somewhere on that beach. (Large number of homeless in Santa Cruz, many not quite all there.) In fifteen years frequenting the beaches of Santa Cruz, I have never seen any evidence of such, not once. Toddler with imperfect diapers are another story. But whatever E-coli they leave behind cannot be nearly as bad as, say, your average grocery store shopping cart: I have seen a study (I can’t find it) that said that 75% showed traces of human feces. (I would guess, from adorable toddlers). I point out to the Mom that seagull E-coli would feel uncomfortable in the gut of a child who eats fish once a week at most. She seems unconvinced. Besides, the beach stinks a little at the moment. Offshore winds have brought in a pile of kelp that is allowed to rot slowly nearby. (Myself, I like the smell of marine decomposition, enthusiastic abstract “environmentalists” often less so because they tend to be sissies.)

In spite of of her mistrust of my explanations, the woman wants to talk. It happens all the time, either because of my still-advantageous physique or because I have a French accent. (Do I sound snarky? Sure thing.) Soon, the conversation drifts, as often happens in conversations between strangers reveling in their idleness; (as happens all the time between women at the beach, I must testify). Somehow, we end up talking about cheese made from milk that has not been pasteurized. I let her know that such cheese is freely available in France though clearly labeled. I also tell her – twice – that several people die in France each year from consuming such cheese. The woman replies by deploring that non-pasteurized dairy products are generally not allowed in the US. She tells me sadly that it’s difficult to eat only “organic” in this country. I begin telling her that the two things are unrelated. Artisan cheese makers of unpasteurized cheese are free to feed their animals irradiated, pesticide laced, genetically modified feed all they want. The products they offer for consumption must simply have been made from raw milk, milk that has not been brought briefly to a high temperature to kill bacteria.

Get it: An adult woman who is nervous about highly diluted bird bacteria in the ocean is craving the guaranteed concentrated bacteria content of a cheese that is medically proven to kill at least some people.

At last I am curious and I want to find out what deep well of ignorance this woman was pulled out of. The answer feels like a big slap in the face: She works in the radiology department at Stanford University Medical Center, a teaching hospital!

Now, my general expectations are low because I was a teacher for thirty years. It’s an occupation that induces a sort of reflexive humility: Listen to your students and measure the immensity of your failure. But what I am facing here is not simple ignorance. It’s a deeply consistent commitment to inconsistency; it’s the aggressive pursuit of disinformation. It’s militant moronism. As I often say – sagely – what makes a moron is not simple ignorance, which can be innocent, or the result of mere laziness – it’s a fierce attachment to one’s ignorance. To be a moron requires demonstrations of spirited ignorance, you might say. And with numbers comes courage, including the courage to believe stupid things openly. But the numbers of the militantly ill-informed are growing thanks to the Internet because, as everybody knows, “If it weren’t true, they wouldn’t put it on the Internet.” (OK here, I am plagiarizing an old TV ad.) And those who lay in fear of everything except cheese and have no basic understanding of how the world works, those who rely blindly on experts, are bound to live like little children who fear monsters under their beds. They want to believe that there is someone looking out for them, if not God then, the Government. So, after its ignominious defeat under the name of Communism, collectivism has not said its last word. It has returned under the guise of ignorant naturalism, the specifically, urban, unlettered belief that nature is benevolent and that it has a Grand Design just for us. The followers want government to force us to live according to the imagined design. Why not try injections of cobra venom, I asked the cheese-loving woman on the beach, it’s completely organic? The black humor went right above her head. Now, I have a vague fear she might propose it to others. Fortunately, cobra venom is hard to come by.

Militant morons are incomparably better interconnected than the working class was in Karl’s time. They are very good at enforcing conformity to their dogma. More importantly, – stay with me here – they stand in as clear relation to the means of communications as the working class stood to the means of production when Marx was freezing his buns in the British Library. Nothing is lost yet. There can be another try. So, one more time, “Morons of the World Unite!”

*I do not deny that bird E-coli can make people sick. I just don’t know. What I know for sure is that any such case of illness would be on the front page of the local, paper, a liberal rag that adores all bad news. There is also the possibility that bird E-coli cause mysterious illnesses that go underground for a long time so that any causal link between them and symptoms is lost to the view. Do you believe this? If you do I have something to sell you.

The Lowest Levels of Love (with apologies to Dr Amburgey)

Different Types of Love scale

The Different Types of Love scale is a 40-item measure of loving feelings toward four different groups. Participants indicate agreement with statements concerning friends […], family […], generic others […], and their romantic partner […]


Table 4 shows that libertarians showed the lowest levels of loving feelings toward others, across all four categories (although the difference with conservatives on love for friends was not significant).


Consistent with the results on the Identification with All of Humanity scale, the libertarian independence from others is associated with weaker loving feelings toward friends, family, romantic partners, and generic others. It is noteworthy that differences between liberals and conservatives were generally small (except toward generic others). Libertarians were the outliers.

You’ll always be my bro, though. These results come from a paper by a bunch of moral psychologists, including Jonathan Haidt. I’ve blogged about the paper before, in regards to intelligence. (Libertarians are smarter than conservatives and liberals, remember? It turns out that we are bigger jerks, too.)

My intuition tells me that this is an incomplete analysis, though (the paper’s authors say as much, up front, in the paper itself). It’s not that libertarians are less loving than conservatives and liberals, it’s simply that we show our love in a different way, most likely in a way that isn’t represented in the sampling process. Libertarians could not, for example, be the ardent internationalists that we are without some measure of “love” for humanity.

Here is an example of what I mean. Suppose I am walking down the street and I see a bum with a cardboard sign and a tip jar (a paper cup from Carl’s Jr). The bum is drunk, and a little stoned. I say to myself, “Damn, that guy is in a crappy situation.” I reach into my pockets to see if I’ve got some change or, better yet, a couple of cigarettes. I am comfortable in claiming that most libertarians – sans those raised on the Atlantic coast of the US – go through the same thought process. If I put myself in that guy’s shoes, anything more than what I spare for him becomes a nuisance to me. Does this make sense? So if I’m panhandling, and somebody tries to do more than give me their change or spare me a couple of smokes, they become a pain in my ass. Why would I want to be a pain in our hypothetical bum’s ass?

This same thought process can be attributed to family, friends, and romantic partners. We’re not being jerks, we’re respecting your autonomy. I know for a fact that this can be a shallow admission of truth for some to hear, but it’s the truth nonetheless.

The libertarian’s outlier-ness in regards to conceptions about love may explain why we have such a tough time politically. (Our superior cognitive skills, which prompts us to be more open to getting at the truth of some matter, also goes some way toward explaining why we fail politically, as politics is emphatically about avoiding the truth.)

Morality (“love”) is simply one of a number of different spheres of conception about how the world works (including, say, economics, history, or sociology). However, morality is often the only sphere that people can afford to use to make judgments about this or that policy or social puzzle. This is because the training that is required to understand more complex topics like economics or sociology is expensive (“time”) and hard to come by. So, for example, there are a number of explanations for why foreign aid to Somalia is bad. You can use historical explanations or sociological ones or economic arguments, but the first – and often only – line of reasoning used by most people is moral in nature. Thus:

Giving money to poor countries is morally wrong.

Not exactly a game-winner, right? Look at what a jerk you are. Should we, as libertarians, be spending more time explaining to others why we think the way we do?

Some more thoughts on what to do with conspiracy theorists and other libertarian sympathizers

Just a quick note on a perennial topic…

Years ago I met my (now) ex-girlfriends crazy uncle. For whatever reason we ended up talking about how some policy or other was a bad idea. “Oh cool,” I thought, a fellow traveler. And then he started talking about how 9-11 was an inside job. “Okay, sure, whatever, but there’s so much else. We could actually convince people that, for example, a better regulatory system could improve the world.” To which he replied that yes indeed 9-11 sure was extra inside-job-y.

Now, this guy was a legitimately crazy uncle, so whatever. But this exchange wasn’t about his being a crazy uncle, because I’ve met plenty of non-crazy, non-uncles who have been similarly zombie-like. Whether they’re of the “Obama is a secret gay Muslim” variety, or any other variety of conspiracy theorist, they are just completely uninterested in attacking the Democratic party for any sensible reason. And this is true of anti-Republicans too. There the conversation is something like “war sure is bad, huh?” “Yeah, and Bush’s puppet masters set the whole thing up.” “Okay, let’s just assume that’s true, how do we reduce the amount of war?” “By getting hung up on evidence that only convinces people who don’t need any more convincing!” “I’m going to go get another drink.”

Here’s the thing: there are plenty of good arguments for opposing whoever it is you want to oppose. Yes, it feels good to talk about how the bums in charge are pawns for the cartoon-mustache-twirlingly-evil powers that be. But if you want to be taken seriously, keep it to yourself.

I see two things going on here. First, these conspiracy zombies are simply bad at thinking like economists. The first rule of being a good economist is that you have to recognize opportunity cost. By perseverating on the big, exciting, good-vs-evil struggle amongst competing factions of the Illuminati (I guess?) you attach all your attention to something you’re unlikely to have any real influence on at the expense of minor but achievable goals like marginal improvement of the immigration system, or school choice, or any number of other things the other side is willing to discuss with you (yeah, yeah, they aren’t willing to discuss that stuff because they’re convinced that your side is in a deal with the devil too…).

Second, and this is more troubling, people have a natural predilection to these sorts of things. People would rather get excited about conspiracies than actually make the world a better place. Is there anything we can do about that? I don’t know. Maybe we need to convince rank-and-file Republicans and Democrats that aliens are conspiring to pit humans against one another by making us argue unproductively rather than simply reform immigration policy. Maybe Krugerz was right?

Failure and learning

The last few months I’ve been thinking about the relationship between failure and entrepreneurship. Just now I’m listening to a podcast and that old point came up: going to prison teaches you how to be a better criminal. You’d think that failed criminals would be the last sort of people to learn from, but really it’s just about the perfect sort of school. The general assumption is that people in prison have high discount rates, so they probably came into prison with one thing on their mind: what the hell went wrong with that last scheme?! So you’ve got dozens of people who all screwed up and that’s all their thinking about. That’s a whole lot better than you would get at a university; nobody at a school is thinking about how they screwed up, they’re thinking about how stupid other people are!

So the question is: how could you set up a system where the incentives of K-grad school teachers are constantly thinking about mistakes they’ve made and are able to pass those lessons on to their students? Sounds like science fiction to me.

Freedom of Speech? No Such Thing!

I get lots of solicitations for libertarian groups and I’m very pleased that there are so many of them these days. I can’t possibly support them all but I recently ponied up for an organization called F.I.R.E. (Freedom for Individual Rights in Education). Their focus is on fighting suppression of free speech on college campuses. Thus, for example, FIRE announces its Speech Code of the Month for October 2013:

Salem State University in Massachusetts prohibits “cultural intolerance” in its residence halls—a broad ban that threatens debate on controversial issues in a place where students often speak the most freely. Making matters worse, the policy applies not only to “actions” but also to “omissions,” broadening its scope to include not only speech but also a student’s personal decision not to speak.

It burns me up to see self-appointed fascist administrators launching attacks on individuals who dare to speak their minds in unpopular ways. And yet, there is a problem, centered on the distinction between public and private institutions. Suppose a small Baptist college decided that students would not be allowed to mock Christianity or promote Islam on campus. Could there be any objection to such a policy? Now suppose that same college decided it would not admit black students. Any thoughtful libertarian would have to defend this policy, distasteful though it may be, on grounds of freedom of association. The bottom line is clear: owners of private colleges have every right to determine whom they will admit as students or hire as faculty and how they are required to act on campus.

Now what about state colleges such as Salem State? Such institutions are “public property,” an oxymoron if we think about it. “Property” denotes the right to use or dispose of some valuable asset, implying an exclusion of non-owners or others who have not been invited to use the property. On the other hand “public” means, if anything, that anybody is allowed to use the asset and nobody is excluded. Who owns San Jose State University where I teach? The California State University Board of Trustees is the most likely candidate, but the faculty has a lot of control through the faculty unions and faculty senates. The Governor and the legislators wield a lot of influence too. The citizens own the place in theory but the connection between SJSU and the citizenry is so remote that it might as well be non-existent. The lack of clarity about who owns the place is the source of most of the idiotic, wasteful, and sometimes downright offensive policies that we see at SJSU and all other government agencies.

So what sort of speech is to be allowed at SJSU? I would say anything goes except shouting down lecturers. Objectionable behavior such as name-calling should be met with ostracism and boycotting or perhaps tit-for-tat. No need for prohibitions. But the people who have power over these matters no doubt see it differently.

Thinking about it more, there really isn’t any such thing as freedom of speech. Speech is not carried out in a vacuum (literally: there can be no sound waves!). If you’re speaking you are standing on someone’s property; if writing you’re using pen and paper or a computer. Land, pen, paper and computers are all resources whose owners have the right to determine who uses them and how. I have no right to invade your house and deliver a speech in your living room nor to grab your computer and compose a blog. Freedom of speech can only mean freedom to use one’s property, or the property of another who has given consent, for speaking purposes. (This, by the way, solves the fire-in-a-crowded-theater conundrum. Prohibitions on yelling “fire” are not a diminution of freedom of speech but rather a recognition of a theater owner’s right to control behavior on his property. See Rothbard’s excellent Ethics of Liberty p. 114.)

In the end, as Rothbard points out, there is no dichotomy between property rights and “civil” rights. There are only property rights, recognizing one’s own body as one’s primary form of property.

Relative or Absolute Advantage: A Question of Conditional Cooperation

A while back I posted a summary of a question posed by economists to various groups of people in a book I am slowly but surely getting through:

The Harvard political economist Robert Reich […] asked a set of groups of students, investment bankers, professional economists, citizens of the Boston area, and senior State Department officials this question: for the United States which of the two following scenarios is preferable? (1) one in which the US economy grows by 25 per cent over the next ten years, while that of Japan grows by 75 per cent or (2) one in which the US economy grows at 10 per cent while the Japanese economy grows at 10.3 percent (132).

I then asked readers the same question, although only Dr Amburgey answered (thanks a lot jerks!). Professor Amburgey stated that he would prefer scenario #1. As an academic who specializes in strategic management at a prestigious business school I would have expected him to pick scenario #1 as well. Why? Here is how Agnew and Corbridge summarized the findings:

Most people in each group except one chose (2). The economists, thinking quantitatively, unanimously chose (1). The magnitude of difference in (1) may have pushed some people towards (2). What is clear, however, is that most of the respondents were willing to forego a larger absolute increase in ‘their’ economic well-being to prevent a larger relative advantage to Japan (132).

Okay let’s slow down for moment. Does everybody see why economists chose scenario #1?

Because economists (and normal people, too) would rather live in a society where the economy grows by 25% instead of 10%. This is what Agnew and Corbridge mean when they write that economists are thinking quantitatively. So why did everybody but the economists choose scenario #2, including high-ranking State Department officials?

The inclination to forego getting richer (‘absolute increase’) if it means the other guy doesn’t get as rich as he otherwise would (‘relative advantage’) is something anthropologists call ‘conditional cooperation,’ and it seems to be a human universal. Here is what academics are stating in plain English: people are willing to forego gains in wealth if it means that others will lose out, too. The question of “How much?” is relative to a given situation.

Why humans do this is the subject of vigorous academic research, but if humans do this is acknowledged by everybody.

Economists and other academics trained in quantitative analysis are not the only ones who prefer absolute gains over relative ones, though. Libertarians are, by and large, also more likely to choose scenario #1 (I wish it were the case that libertarians were unanimous on this, but as the movement grows, so too does the number of less than intelligent people in our quadrant). Some of this may have to do with IQ, but I think the cooperative nature of our worldview also plays an influential role in the way we make our choices.

One doesn’t have to be economically-adept to choose scenario #1 (though it helps). A question that libertarians may ask is, in response to the prompt, “Why should I care if the Japanese get richer, faster than I do?” This question would more than likely be followed with a statement along these lines: “As long as they are not gaining their riches through force or fraud I see absolutely nothing wrong with this scenario.”

And it would be this response that explains why I consider myself to be a libertarian.

By the way, here is the book I’ve been reading that sparked the post. It’s titled Mastering Space… and it was written by a couple of Marxist geographers in 1995. The book is an interesting attempt to reconcile the world that stood before them (a liberal, democratic world) with the one that they believed would occur through socialist revolution (with the Soviet Union leading the masses out of the dark depths of capitalist slavery). Some of the most fascinating research to come out of the Marxist paradigm has been produced since 1991. I think it would be wise to heed Orwell’s suggestion that the Left-Right paradigm be abandoned and replaced by an authoritarian-libertarian one.

Libertarianism and Psychology

by Fred Foldvary

Recently there have been a stream of negative critiques of libertarianism. All of them are misunderstandings.  It seems that these critics are just dressing up their antagonism with pseudo-scientific textiles.

The latest attack is in Psychology Today. Peter Corning, Ph.D., asks and answers “What’s the Matter with Libertarianism?” under the rubric “The Fair Society.”

He says, “The libertarian model of individual psychology is grounded in the utilitarian, neo-classical economics model of ‘Homo economicus,'” by which he means selfish economic man. Corning provides a couple of quotes by Nozick and Dawkins, but no general evidence that such is the viewpoint of most libertarians.  Is there a survey?  Is there  inductive logic leading to this conclusion? No, there is nothing. And this is supposed to be a scientific finding of a scholarly psychologist.

He cites the Wealth of Nations by Adam Smith, but is evidently unaware of Smith’s other book, The Theory of Moral Sentiments, in which Smith explained the other human motivation, sympathy for others.  Most libertarians that I know personally or from writings believe that it is quite good to be benevolent.

Perhaps Corning is confusing libertarianism with an extreme version of Randian Objectivism. He cites Ayn Rand as writing “Man’s first duty is to himself.”  But libertarian philosophy posits no such “first duty.”  The only libertarian moral duty is to avoid coercive harm to others.

Some libertarians are “anarcho-capitalists” who seem to envision an atomistic society of individuals contracting with protective agencies.  But libertarianism includes the communitarian vision of consensual communities with collective goods.

Corning claims that “libertarians generally have no model of society as an interdependent group with a common purpose and common interests.”  But no libertarian denies that society is interdependent. What is denied, and properly so, is that all the persons in a country have some common purpose and interests.  A multicultural society such as the USA consists of many interests, sometimes in conflict.  The interest of a thief clashes with that of peaceful victims.  If libertarianism is applied to society, the diverse interests can co-exist, the rule being that one may not force one’s interests on others.

Corning then notes that corporate interests sometimes perpetrate malfeasance. Yes, and if they commit fraud, that is theft, and libertarian policy would be to punish this.

He writes, “our first collective obligation is to ensure that all of our basic needs are met.” Now we see his political agenda.  Corning is a statist collectivist who favors the governmental welfare state. There is no abstract moral collective obligation. All obligations are individual. There can be a group with a mutual contract that then creates a collective obligation, but only from individual delegation.  As to basic needs, libertarian policy enables people to apply their labor and keep all the wages from that, which enables them to provide for their needs.  It is today’s statist restrictions and taxes that deprive workers of the ability to obtain their needs.  The few adults unable to work would get charity. The mass poverty of today is caused by government, not by the non-existent free market.

Evidently Corning believes that a libertarian world would be too selfish to care about the few who fall into misfortune.  But there is no evidence that greater freedom results in greater selfishness in the sense of not caring about others.  So here we have an article that seeks to apply psychology to an ideology, but with no evidence and with flaws in logic.  Psychology here is being applied as a cover for ideological views.  Has this been peer reviewed, or are the peers just as biased and lacking in scientific principle?

Cognitive Blocks and Libertarianism

Last year Brian Gothberg, who was lecturing at a summer seminar I attended in 2009, left the following comment in response to a post about media coverage and Austrian economics:

I think there’s a perceptual or cognitive block, that simply makes it hard for many people to see government activity in the foreground of the story, as an actor which actively and (often) arbitrarily changes outcomes. It reminds of the recent Brian Greene programs on cosmology on PBS. In one, he compares the treatment of space, through most of scientific history, as simply being the unadorned theater stage, upon which the truly interesting things actually happen. It’s only later that Einstein (using Riemann’s math) described space as having positive, unambiguous characteristics. After Einstein brought space itself into the foreground, you could make statements about particular things that space did do, and other particular things that space did not do.

Another example: at a gathering of friends with children, my wife and I were observing a small boy (3-ish) who kept biting the other children. When it came to tears, parents would come in and intervene, and scold him. Later, we watched the same parents — who were baffled at the boy’s biting — laugh and giggle as the father playfully bit his son. Apparently, nobody had ever brought the father’s behavior into the foreground, for their scrutiny, as a possible influence on the son’s problem. Sometimes, the obvious does stare people in the face. I think that the way we describe the role and actions of government, in the press and schools, goes a long way to explain this cognitive block. Libertarianism is nothing like common sense; not nearly.

I was reminded of this as I read the following 2008 piece by Roger Lowenstein in the New York Times, where he documents the regulatory regime that was built by the state in the years leading up to the Great Recession. Check this out: Continue reading

Imperialism: The Illogical Nature of “Humanitarian” Wars

Dr Delacroix is simply unable to grasp my argument. There are two possible reasons for this:

  1. He simply does not want to grasp it
  2. He simply cannot grasp it

Most of the time I believe that Reason #1 is responsible for one’s inability to grasp a concept, at least when we are dealing with high intelligence individuals like Dr Delacroix.

But I think this is a case where Dr Delacroix and other like-minded imperialists simply cannot grasp the logic behind my argument. Allow me to hearken readers back to my recent post on “Libertarian IQ” where I quote an academic computer programmer on the inability of some students to grasp the concepts he is trying to teach:

Let me tell a story that is typical of those I heard from the TAs who worked for me at the computing center. A student comes up to the TA and says that his program isn’t working. The numbers it prints out are all wrong. The first number is twice what it should be, the second is four times what it should be, and the others are even more screwed up. The student says, “Maybe I should divide this first number by 2 and the second by 4. That would help, right?” No, it wouldn’t, the TA explains. The problem is not in the printing routine. The problem is with the calculating routine. Modifying the printing routine will produce a program with TWO problems rather than one […]

The student in my hypothetical story displays the classic mistake of treating symptoms rather than solving problems. The student knows the program doesn’t work, so he tries to find a way to make it appear to work a little better. As in my example, without a proper model of computation, such fixes are likely to make the program worse rather than better. How can the student fix his program if he can’t reason in his head about what it is supposed to do versus what it is actually doing? He can’t.

Dr Delacroix is in a position similar to that of the student.

When I point out that the post-colonial states of the Middle East are, by their very structure, incapable of anything other than autocracy, he responds by pointing out that the West has often taken sides in the various conflicts that erupt in these states. The logic behind this reasoning follows accordingly:

Brandon: This hot dog is undercooked, so eating it will make me sick.

Dr Delacroix: Yes, but it has chili on it.

B: No dude, eating it will make me sick.

DD: Yes, but it also has brown mustard on it.

B: I’m sorry dude, but I’m not eating the hot dog.

DD: Now you’re just being senseless (and rude!).

You see how that works?

Dr Delacroix and other “humanitarian” imperialists seem to believe that when the West picks a side in a conflict that has nothing to do with national security, imperialism suddenly becomes a perfectly acceptable way of fixing the problems of the world. Yet just like the programming student in the example above, Dr Delacroix’s attempts to fix a superficial problem (with bombs no less) actually end up exacerbating the real, underlying problem, which is that the states currently in place in most of the world are not seen as legitimate by its “citizens.”

Post-colonial states are not considered legitimate by their subjects because they never had a say in how to go about structuring such a state. They had no say in where the borders should be, or who they could trade with, or how to best accommodate foreigners.

Because they are not legitimate, power struggles (even in long-lived dictatorships) for the center are constant since those who eventually end up controlling the center receive legitimacy from the UN and other imperial institutions (but not their own people). Why bother trying to gain the legitimacy of an impoverished populace when you can simply capture the rent associated with running a post-colonial state?

Boombustology: A Review

These days commentators near and far are announcing booms and bubbles in Treasury securities, gold, China – perhaps even a bubbles. Vikram Mansharamani is in the China camp, but his arguments stand out from the others. If you can get past the title of his book – Boombustology – you will be rewarded with a thorough, well-documented, yet mercifully brief and readable exposition of a theory of booms and busts applied to past events and China’s future.

Most macroeconomists see the boom-bust cycle as an unsolved problem. Like physicists in search of a Grand Unified Theory, they long for a model that accounts for all the major aspects of the business cycle. Perhaps they are hampered by looking through the wrong end of a telescope. Mansharamani uses not just one but five “lenses” to examine the subject. In addition to micro- and macroeconomics, they include psychology, politics, and biology. He is not the first economist to invade these fields. Rather his accomplishment lies in assembling ideas from each of those areas, applying them to past boom-bust cycles, and putting his ideas on the line by issuing a brave prediction of a forthcoming Chinese economic train wreck.

Austrian Business Cycle Theory

The author’s macro lens includes Austrian business cycle theory. That theory says inflation of the money supply causes a drop in interest rates, which is misinterpreted as an increased aggregate preference for saving over consumption, leading to investments in more roundabout means of production. When it becomes clear that there has been no such preference shift, these undertakings are seen to be at least partial mistakes, requiring write-offs and retrenchment – a bust. The boom is the problem, not the bust, which is the market’s attempt to realign itself to the realities of time preference. Austrian business cycle theory has great merit but leaves some things unexplained.

Mansharamani’s micro lens includes the concept of reflexivity. Market participants don’t just observe prices but also influence them. Reflexive dynamics occasionally give rise to instabilities in which rising prices lead to increased demand.  A simpler term would be a “bandwagon effect.” I recall an office party in 1980 where one of the secretaries asked about buying gold – precisely at the peak, as it turned out. All she knew about gold was that it was way up and therefore must be going higher. I should have realized that when you see financially unsophisticated people like her climbing on a bandwagon, you can be pretty sure there’s no one left to sell to and nowhere for prices to go but down, which is where gold and silver prices went in 1980, and in a big hurry.

From psychology Dr. M. borrows ideas and data about cognitive biases. For example, subjects asked to guess some bland statistic, like the number of African countries that belong to the UN, are influenced by the spin of a wheel of fortune: When the wheel lands on a high number, they guess higher. He translates this and a dozen other cognitive biases into irrational market behavior that can foster booms and busts.

He introduces his biology lens with an analogy to the spread of an infectious disease. When the prevalence of a disease reaches a high level, the infection rate necessarily slows and the disease begins to wane, just like the 1980 gold market.  But it is devilishly difficult to “inoculate” oneself against infectious ideas. Individual investors who can do so have a decent chance to beat the market averages over time, I believe. (Those who would pursue these ideas in greater depth would do well to find James Dines’s quirky and expensive but worthwhile book, Mass Psychology.) Continue reading