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