Nightcap

  1. The politics of self-esteem Mikko Tolonen, Liberty Matters
  2. Between Allah and America Farzana Shaikh, Literary Review
  3. A history of the Russian bathhouse Rachel Polonsky, NYRB
  4. But when will Conor Friedersdorf leave the Atlantic?

The Seldon Fallacy

Like some of my role models, I am inspired by Isaac Asimov’s vision. However, for years, the central ability at the heart of the Foundation series–‘psychohistory,’ which enables Hari Seldon, the protagonist, to predict broad social trends across thousands of galaxies over thousands of years–has bothered me. Not so much because of its impact in the fictional universe of Foundation, but for how closely it matches the real-life ideas of predictive modeling. I truly fear that the Seldon Fallacy is spreading, building up society’s exposure to negative, unpredictable shocks.

The Seldon Fallacy: 1) It is possible to model complex, chaotic systems with simplified, non-chaotic models; 2) Combining chaotic elements makes the whole more predictable.

The first part of the Seldon Fallacy is the mistake of assuming reducibility, or more poetically, of NNT’s Procustean Bed. As F.A. Hayek asserted, no predictive model can be less complex than the model it predicts, because of second-order effects and accumulation of errors of approximation. Isaac Asimov’s central character, Hari Seldon, fictionally ‘proves’ the ludicrous fallacy that chaotic systems can be reduced to ‘psychohistorical’ mathematics. I hope you, reader, don’t believe that…so you don’t blow up the economy by betting a fortune on an economic prediction. Two famous thought experiments disprove this: the three-body problem and the damped, driven oscillator. If we can’t even model a system with three ‘movers’, because of second-order effects, how can we model interactions between millions of people? Basically, with no way to know which reductions in complexity are meaningful, Seldon cannot know whether, in laying his living system into a Procustean bed, he has accidentally decapitated it. Using this special ability, while unable to predict individuals’ actions precisely, Seldon can map out social forces with such clarity that he correctly predicts the fall of a 10,000-year empire. Now, to turn to the ‘we can predict social, though not individual futures’ portion of the fallacy: that big things are predictable even if their consituent elements are not.

The second part of the Seldon Fallacy is the mistake of ‘the marble jar.’ Not all randomnesses are equal: drawing white and black marbles from a jar (with replacement) is fundamentally predictable, and the more marbles drawn, the more predictable the mix of marbles in the jar. Many models depend on this assumption or similar ones–that random events distribute normally (in the Gaussian sense) in a way that increases the certainty of the model as the number of samples increases. But what if we are not observing independent events? What if they are not Gaussian? What if someone tricked you, and tied some marbles together so you can’t take out only one? What if one of them is attached to the jar, and by picking it up, you inadvertently break the jar, spilling the marbles? Effectively, what if you are not working with a finite, reducible, Gaussian random system, but an infinite, Mandelbrotian, real-world random system? What if the jar contains not marbles, but living things?

I apologize if I lean too heavily on fiction to make my points, but another amazing author answers this question much more poetically than I could. Just in the ‘quotes’ from wise leaders in the introductions to his historical-fantasy series, Jim Butcher tells stories of the rise and fall of civilizations. First, on cumulative meaning:

“If the beginning of wisdom is in realizing that one knows nothing, then the beginning of understanding is in realizing that all things exist in accord with a single truth: Large things are made of smaller things.

Drops of ink are shaped into letters, letters form words, words form sentences, and sentences combine to express thought. So it is with the growth of plants that spring from seeds, as well as with walls built from many stones. So it is with mankind, as the customs and traditions of our progenitors blend together to form the foundation for our own cities, history, and way of life.

Be they dead stone, living flesh, or rolling sea; be they idle times or events of world-shattering proportion, market days or desperate battles, to this law, all things hold: Large things are made from small things. Significance is cumulative–but not always obvious.”

–Gaius Secundus, Academ’s Fury

Second, on the importance of individuals as causes:

“The course of history is determined not by battles, by sieges, or usurpations, but by the actions of the individual. The strongest city, the largest army is, at its most basic level, a collection of individuals. Their decisions, their passions, their foolishness, and their dreams shape the years to come. If there is any lesson to be learned from history, it is that all too often the fate of armies, of cities, of entire realms rests upon the actions of one person. In that dire moment of uncertainty, that person’s decision, good or bad, right or wrong, big or small, can unwittingly change the world.

But history can be quite the slattern. One never knows who that person is, where he might be, or what decision he might make.

It is almost enough to make me believe in Destiny.”

–Gaius Primus, Furies of Calderon

If you are not convinced by the wisdom of fiction, put down your marble jar, and do a real-world experiment. Take 100 people from your community, and measure their heights. Then, predict the mean and distribution of height. While doing so, ask each of the 100 people for their net worth. Predict a mean and distribution from that as well. Then, take a gun, and shoot the tallest person and the richest person. Run your model again. Before you look at the results, tell me: which one do you expect shifted more?

I seriously hope you bet on the wealth model. Height, like marble-jar samples, is normally distributed. Wealth follows a power law, meaning that individual datapoints at the extremes have outsized impact. If you happen to live in Seattle and shot a tech CEO, you may have lowered the mean income in the group by more than the average income of the other 99 people!

So, unlike the Procustean Bed (part 1 of the Seldon Fallacy), the Marble Jar (part 2 of the Seldon Fallacy) is not always a fallacy. There are systems that follow the Gaussian distribution, and thus the Marble Jar is not a fallacy. However, many consequential systems–including earnings, wars, governmental spending, economic crashes, bacterial resistance, inventions’ impacts, species survival, and climate shocks–are non-Gaussian, and thus the impact of a single individual action could blow up the model.

The crazy thing is, Asimov himself contradicts his own protagonist in his magnum opus (in my opinion). While the Foundation Series keeps alive the myth of the predictive simulation, my favorite of his books–The End of Eternity (spoilers)–is a magnificent destruction of the concept of a ‘controlled’ world. For large systems, this book is also a death knell even of predictability itself. The Seldon Fallacy–that a simplified, non-chaotic model can predict a complex, chaotic reality, and that size enhances predictability–is shown, through the adventures of Andrew Harlan, to be riddled with hubris and catastrophic risk. I cannot reduce his complex ideas into a simple summary, for I may decapitate his central model. Please read the book yourself. I will say, I hope that as part of your reading, I hope you take to heart the larger lesson of Asimov on predictability: it is not only impossible, but undesirable. And please, let’s avoid staking any of our futures on today’s false prophets of predictable randomness.

Efficient markets as normative systems

Recently, I came across this outstanding interview with Eugene Fama published by The Market / NZZ. Besides the main subject discussed -the inability of central banks to control inflation-, the interview is intertwined with gripping assertions about the limits of knowledge, such as the following ones:

Bubbles are things people see in hindsight. They don’t identify them in advance. Sure, you can look at the behavior of prices, and you may be able to identify cases where they are too high. But if you only look back and say: «Oh, stocks went down a lot, so that was a bubble», then that’s 20/20 hindsight. At the time, there was no evidence that there was a bubble.

I don’t say markets are completely efficient, but they’re efficient for most questions that I address. Models are never a 100 % true. If they were, we would call them reality, not models. But for almost all purposes, market efficiency is a very good approximation.

The real question is: How do you pick Warren Buffett? The way you pick him is after the fact, since he has done very well. Now, suppose I take 100,000 investors and say: Let’s let them run for 30 years and pick out the winner. Because you roll the dice so many times, even if none of them is a good or bad investor, many investors will do well and many will do poorly purely by chance. Statistically there is also going to be a big winner, but solely due to chance. In other words: There will be extremely good outcomes and extremely bad outcomes, but you just can’t tell who is successful because of luck and who because of skill.

This quotations resemble the distinction made by Friedrich Hayek between relative and absolute limits to explanation (The Sensory Order, 1952):

8.67. Apart from these practical limits to explanation, which we may hope continuously to push further back, there also exists, however, an absolute limit to what the human brain can ever accomplish by way of explanation -a limit which is determined by the nature of the instrument of explanation itself, and which is particularly relevant to any attempt  to explain particular mental processes.

8.68. If our account of the process of explanation is correct, it would appear that any apparatus or organism which is to perform such operations must possess certain properties determined by the properties of the events which it is to explain. If explanation involves that kind of joint classification of many elements which we have described as “model-building”, the relation between the explaining agent and the explained object must satisfy such formal relations as must exist between any apparatus of classification and the individual objects which it classifies (Cf. 5.77-5.91).

5.90. The model building by such an apparatus of classification simplifies the task and extends the scope of successful adaptation in two ways: it selects some elements from a complex environment as relevant for the prediction of events which are important for the persistence of the structure, and it treats them as instances of classes of events. But while in this way a model building apparatus  (and particularly one that can be constantly improved by learning) is of much greater efficiency than could be any more mechanical apparatus which contained, as it were, a few fixed models of typical situations, there will clearly still exist definite limits to the extent to which such a microcosm can contain an adequate reproduction of the significant factors of the macrocosm.

8.69. The proposition which we shall attempt to establish is that any apparatus of classification must possess a structure of a higher degree of complexity than is possessed by the objects which it classifies; and that, therefore, the capacity of any explaining agent must be limited to objects with a structure possessing a degree of complexity lower than its own. […]

Being confronted with an absolute limit to explanation does not mean that chaos lies outside those limits. Indeed, what we have beyond the scope of our models is a complex order -in this case, efficient markets. A kind of order whose “[…] existence need not manifest itself to our senses but may be based on purely abstract relations which we can only mentally reconstruct” (F. A. Hayek, “Law, Legislation, and Liberty”, Chapter II; 1973), and because of that its explanation finds not practical limits but absolute ones. For example, in this field, “passive investing” would be homologous to a law-abiding behaviour or to the moral saying “being honest is the best policy”. Of course, for such systems -economic, legal or moral- to evolve there have to be some “prices”, i.e.: people who trade in the short term or who perform innovative behaviours which establish a new legal precedent or a new habit.

But for this innovation to happen it is indispensable for the agents to count on a framework of stable regularities -usually called abstract or spontaneous orders- upon which they could draw their own “maps”, create new expectations, and coordinate their plans with other agents. That indicates that we have already spent enough ink writing about the economic way of looking at the law, and perhaps it is time to start pondering markets as complex normative systems.

Nightcap

  1. The Fatal Conceit of F. A. Hayek (pdf) Larry Sechrest, Reason Papers
  2. Democracies are spontaneous orders, not states (pdf) Gus DiZerega, Cosmos+Taxis
  3. Empire: public good and bads (pdf) Coyne & Davies, Econ Journal Watch
  4. Bangladeshi colonies in space Asif Saddiqi, Los Angeles Review of Books

Nightcap

  1. 9/11 + 19: Lessons Irfan Khawaja, Policy of Truth
  2. Misinformation and foreign policy Scott Sumner, EconLog
  3. The Hayek question Chris Dillow, Stumbling & Mumbling
  4. Why not anarchy? Daniel McCarthy, Modern Age

Nightcap

  1. How Communist is China today? Rong Jian, Reading the China Dream
  2. Women in academia and Parisian literary life Ann Smith, Dublin Review of Books
  3. Hayek, international organization, and Covid-19 (video) Edwin van de Haar, Institute of Economic Affairs
  4. Hayekian Spontaneous Order and the International Balance of Power” Edwin van de Haar, Independent Review

Nightcap

  1. Greco-Roman civilisation has dominated ancient history for too long Philip Womack, Spectator
  2. The reaction against the End of History Nick Nielsen, Grand Strategy Annex
  3. Hayek at the hospital; the Use of Knowledge in hospital discharge decisions Irfan Khawaja, Policy of Truth
  4. Don’t mistake the immediate for the important Michael Koplow, Ottomans & Zionists

Hayek, International Organization and Covid-19

Just to inform all NOL-readers out there, if you like the subject, please register and join the IEA webinar I’ll give next wednesday, 13.00 hours, London time.

Institute of Economic Affairs > Events
Time:
10/06/2020
13:00 – 14:00

Although it was never the subject of a book, Friedrich Hayek wrote a lot about international relations during his long career and had rather firm views on international order and how it could be achieved. In this webinar, these Hayekian views are presented in the context of the current COVID-crisis. What was Hayek’s opinion about the existence and the role of international governmental organizations, such as the World Health Organization?

Dr. Edwin van de Haar (www.edwinvandehaar.com) is an independent scholar who specializes in the liberal tradition in international political theory. He has been a (visiting) lecturer at Brown University, Leiden University and Ateneo de Manila University. Van de Haar is the author of Classical Liberalism and International Relations Theory. Hume, Smith, Mises and Hayek (2009), Beloved Yet Unknown. The Political Philosophy of Liberalism (2011, in Dutch) and Degrees of Freedom. Liberal Political Philosophy and Ideology (2015). Among others, he contributed to The Oxford Handbook of Adam Smith (2013) and a forthcoming book on The Liberal International Theory Tradition in Europe, while his articles on liberal ideas and liberal thinkers appeared among others in Review of International Studies, International Relations, International Politics, Independent Review and Economic Affairs.

Van de Haar got his PhD in International Politcial Theory from Maastricht Universit in 2008, and holds master degrees in international relations (London School of Economics and Political Science) and in political science (Leiden University).

Please visit: https://iea.org.uk/events/hayek-international-organization-and-covid-19/

Nightcap (again)

(Ooops, lol. I hope all of NOL‘s American readers had a good Memorial Day, and that everybody else had a good Monday. The Glasner piece is an excellent discussion of the Austrian School of Economics.)

  1. An Austrian (School) tragedy David Glasner, Uneasy Money

Nightcap

  1. An Austrian (School) tragedy David Glasner, Uneasy Money

On growing up in Brazil, political liberty, and religion

Steve Bishop recently interviewed me for his blog and we talked about my personal background, my Christian faith and my interest in Reformational philosophy, a tradition of thought of which Abraham Kuyper was an early proponent and Herman Dooyeweerd, the main exponent.

Here is a personal part of the interview that might be of interest to NOL readers. I answer a question about what influenced my intellectual development:

Another influence I should mention came from people and events that taught me to mistrust the hubris of political authoritarianism. My Italian granddad was a child during World War II and his family never joined the Fascist party. As a result, they had much less access to food and clothes and suffered a lot during the war. This is part of the reason why he later decided to try something new in Brazil. I grew up hearing his stories about the horrors of war. My other grandfather was older and he had been drafted by the Brazilian Army to join the allied forces and fight the axis powers in Italy. But, before shipping to Europe, in the Army base, he decided he shouldn’t go fight the war, so he had to hide for a few years before amnesty was granted for defectors. When I was born, Brazil was still under the rule of a military junta, but later transitioned to a convoluted period of democratic transition. High inflation was destroying people’s livelihoods. I remember running in front of the “price man” at the supermarket to get products for the previous day’s price before the new tags were placed in them. My father got his salary and would have to immediately spend most of it by stocking up groceries for the entire month. This was very early in my childhood, until age nine or so, but I still have vivid memories of the national currency changing name every six months or so. By college time, I was already immune to the idea that politicians are more enlightened than the rest of us.
Then, when I read books such as The Road to Serfdom or, say, Orwell’s 1984, they helped me conceptualize what I had already noticed intuitively. I had already grasped Lord Acton’s maxim that “absolute power corrupts absolutely”. If you have, let’s say, an Augustinian view of the potential damage we can cause to fellow human beings if unhampered by checks and balances, then you can easily identify some of the naivete about human nature both right and left on the political spectrum, and that can lead you to the normative point that civil government should be limited in scope.
Further on, I talk about current projects:
In 2018 I delivered the Calihan Lecture at the Acton Institute and applied the notion of sphere sovereignty to interpret the crisis we are facing in the public square. This lecture has recently been published in the Journal of Markets & Morality. Last year I finished a project on the classical liberal background of the anti-revolutionary movement. An article summarising the main findings will come out in the Journal of Church and State in 2021. I didn’t want it to be too controversial and deliberately toned down the argument after the first peer review, but the main point is that Groen van Prinsterer and Kuyper fall under the category of “anti-rationalist liberals”, together, of course, with figures such as Lord Acton, Edmund Burke, Alexis de Tocqueville, and others who were, together with the anti-revolutionaries, very critical of the “rationalist liberalism” of, say J.S. Mill or the French liberals. As part of this project, I wrote an epilogue to the Portuguese translation of Kuyper’s speech on the social question, a book chapter for a South African publisher on Christian ethics and entrepreneurship in an interventionist economy.

This, of course, alludes to F.A. Hayek’s distinction between two kinds of liberal tradition, one of which he rejected (rationalist liberalism) in order to embrace the other (anti-rationalist liberalism).

On Abraham Kuyper’s Political Liberalism

My article “Abraham Kuyper and Guillaume Groen van Prinsterer as Anti-Rationalist Liberals” has been accepted for publication in the Journal of Church & State and will hopefully be in print in 2021.

In this article, I explore F. A. Hayek’s division of pre-1848 liberalism into two contrasting worldviews — rationalist and anti-rationalist. I argue that both Groen van Prinsterer and Kuyper, two important Dutch Anti-Revolutionary writers, were anti-rationalist liberals.

Both of them are on the record denouncing “liberalism”, but both refer mostly to French liberalism of the rationalist kind. And both admired Edmund Burke and Alexis de Tocqueville, cited by Hayek as great exponents of anti-rationalist liberalism.

I hope this article will lead to an interesting conversation as to why the contemporary Kuyperian movement seems to be much more left-wing than the original anti-revolutionaries.

A pre-print version of the article can be viewed on the Oxford Academic website.

 

Nightcap

  1. Permutations on Ernst Bloch’s “S is not yet P” Nick Nielsen, Grand Strategy Annex
  2. “‘Emergencies’ have always been the pretext …” Peter Boettke, Coordination Problem
  3. The Villager And The F-18 Deep Prasad, Medium
  4. Neill Blomkamp’s experimental film studio is AWESOME Andrew Liptak, Verge

Nightcap

  1. Hayek’s rapid rise to stardom David Glasner, Uneasy Money
  2. Why I am not a natural lawyer FH Buckley, Law & Liberty
  3. British Imperial Federation (pdf) William Smith, Political Science Quarterly
  4. The people who profited from the Trail of Tears Caitlin Fitz, Atlantic

A PPE pandemic reading list

I haven’t written for a while – other duties get in the way – but I’d like to suggest this reading list in Philosophy, Politics, and Economics for the present time of crisis and perplexity. The main reason is that everyone seems to be an expert in Economics, Epidemiology, and Political Philosophy these days, assuming that from “facts” we can easily derive “values” and answer the question, “what is to be done?” I think this is at best a naïve attitude and at worst the same rationalistic hubris we experience everytime a political issue is simplified and reduced to a matter of “science”. Yes, there are facts and they shouldn’t be ignored, but it’s not easy to decide what is to be done, morally and politically, in light of those facts.

The first item on the list is Leviathan by Thomas Hobbes. A classic, and a reminder that people choose all the time to sacrifice some degree of liberty in the altar of survival (or a chance to survive), but also a reminder that Leviathan may turn from friend to foe, from protector to persecutor – and there is very little we can do about it. The second item is John Locke’s Second Treatise of Government, which then explores this topic in light of the fact that civil government shouldn’t have absolute power. It makes an attempt to show us how that power can, or should, be limited within a certain sphere of responsibility. Though it’s still there to protect us.

In this time of pandemic, people feel tempted to panic. People and politicians are calling for dramatic measures, and one reason is that the use of government coercion – which, according to Locke, ought to be limited – might be necessary to force people to cooperate, for example, by staying home. This is a proposed solution to the dilemmas of collective action posed by the problem that some may “free-ride” on the rest, and, as a result, the disease will keep spreading, frustrating any attempt to slow it down. Against dramatic, desperate and, perhaps, arrogant, use of political power, and in favor of prudence and wisdom, Edmund Burke’s collection of writings from the period of the French Revolution can be a beacon of light. On the other hand, explaining the dilemmas of collective action and suggesting ways of solving them, Mancur Olson offers an insightful look at incentives and group behavior in The Logic of Collective Action.

However, the idea that government coercion is the only solution to dilemmas of collective action (such as imposing a quarantine, for example) doesn’t hold water. In fact, other economists follow Olson in saying the problem is real and challenges a strict individualist way of thinking, but, adding to Olson’s point, they also acknowledge the role of private action and sanctions in fostering cooperation. Elinor Ostrom’s Governing the Commons is a wonderful study that opens up a number of possibilities for private enforcing of collective action to preserve and promote the frugal allocation of common goods. This can be complemented by The Quest for Community, an overlooked work by sociologist Robert Nisbet, where it becomes clear that, between individuals, the state, and the market, there’s room for other associations and communities that strengthen civil society – particularly in this challenging time. Nisbet’s lesson invites liberty-loving people to reflect on whether a hyper-individualistic view of the world ends up pitting helpess individuals against Leviathan instead of offering the buffer zone of community in between. This is something Alexis de Tocqueville discussed in the 19th century.

And just for the sake of dealing with the issue that “is” doesn’t easily lead to “ought”, and that science might have facts and an explanation for them, but does not easily conduce to a proper discussion on values policy, I must finish this PPE pandemic reading list with F. A. Hayek’s The Constitution of Liberty. On Chapter 4, for example, Hayek introduces a constrast between “rationalist liberalism” and “anti-rationalist liberalism”. Rationalist liberals assume too easily that knowledge of the facts on the ground will give them what they need to re-design a society governed by reason. Hayek warns us against this technocratic assumption and offers a defence of “anti-rationalist liberalism”. Anti-rationalist liberals understand the importance of spontaneous order and of constraining power (even at a time of crisis) while prudently balancing the values of liberty and safety in light of past experience and tradition.


Three Additional readings:

Buzan, Waever and De Wilde, Security: A New Framework for Analysis (1997). In a liberal democracy, the state steps in suspending some civil liberties only if it can persuade citizens that there’s a threat that justifies it. This book offers a framework to interpret how such threats are constructed in official and non-official discourse, and to what extent this construction of a threat can be effective.

Robert Higgs, Crisis and Leviathan (2013). 25th anniversary edition. Looks at US history and how government employed crises to its advantage and the advantage of the ruling elites. In particular, security and economy related issues are dealt with.

Sanford Ikeda, Dynamics of the Mixed Economy (2002). Shows that a time of crisis might be a time for further interventionism in the economy, as Higgs (see above) suggests, but might also be a time for disintervention, as seems to be the case with part of the agenda today (FDA deregulation, etc.) This is based on Ludwig von Mises’ view that interventionist economies are not very stable and are always swinging as a pendulum between socialism and capitalism.