Nightcap

  1. Epistemological anarchism to anarchism Bill Rein, NOL
  2. There’s good BS and bad BS Rick Weber, NOL
  3. Authority as a useful guidepost Rick Weber, NOL
  4. Federalizing the social sciences Michelangelo Landgrave, NOL

Nightcap

  1. The Use of Knowledge in Society F.A. Hayek, American Economic Review
  2. On conservative nationalism and foreign policy Emma Ashford, War on the Rocks
  3. Europe’s ‘solidarity’ crumbles in the face of a crisis Kai Weiss, CapX
  4. Bigger Brother: surveillance capitalism Tim Wu, New York Review of Books

Nightcap

  1. Why didn’t we see this coming? Scott Sumner, MoneyIllusion
  2. Against ageism Irfan Khawaja, Policy of Truth
  3. Expose the young Robin Hanson, Overcoming Bias
  4. Humility, not certainty Victor Davis Hanson, City Journal

Nightcap

  1. The inverted anthropologist Arnold Kling, askblog
  2. Dishonesty is a core nationalist value Scott Sumner, EconLog
  3. What does the superhero craze say about our own times? Iwan Rhys Morus, Aeon
  4. The ant queen is not actually a central planner.” Rick Weber, NOL

True heroes of capitalism

Steve Jobs, Elon Musk, Bill Gates, John D. Rockefeller, and so forth and so forth. The list of successful entrepreneurs who have become household names is long. To an extent they are the heroes of capitalism, they succeeded, often against all odds, though often with crucial help of far more unknown others, yet they did it and changed whole industries, if not the lives of all people on the globe.

Capitalism is about freedom, to have the liberty to start a business, to start selling a new product or new service. Or if you’re a big company: the freedom to buy somebody’s else’s idea, or to invest huge amounts into research, development, and/or (re)design. It is one of the most important pillars of our civilization, this process built on economic freedom, trade, specialization, barter, openness for odd things or tolerance for people who venture into new directions. Despite many setbacks, opposing ideas and much room for improvement, all around the globe, it still all adds up to what we are now: the richest and most healthy people in the world of all times. And this is not meant teleological, it is certainly not the end of the development, there is more to come, of course.

However, capitalism is built on failure. It is only in a limited number about the success stories, in far more cases it is about hard failure. For every success there are many more failures, people who went bust, companies that did not make it. In the US this is a fact more known and far more accepted than in Europe. Here, if you went broke, you would be indebted for the rest of your life and seen as a social failure as well. Happily, that stigma is not as strong as it used to be, but it is sure not out of existence either.

Therefore, the true heroes of capitalism are those who fail. The men and women who put in their life savings, or take a big loan, to start a business, or take over a franchise, or what have you. Working their ass off, taking risks, without any sight on a certain reward. Also, at least here in The Netherlands and surely elsewhere too, without the social security that employees may count on.

Still, they go for it, they chase their dream, to remain independent, because they hate to work for a boss or manager, because they believe in their great idea, because they want to get rich, or a combination of these elements. And then they fail, have to fire their personnel who depend on them, they can’t pay the bills anymore, file for bankruptcy, and have to accept that their dream is over.

That is hard. I want to congratulate them though. Because without them, our capitalist system would remain static, since no new ideas would drip into the economy. In short: capitalism would grind to a hold. So thank you, all you failed entrepreneurs, for putting in the effort, for trying and working hard. You are true heroes.

Institutions, Machines, and Complex Orders (Part 5): Logical models

There is a thin line between the abstract model of “natural selection of institutions,” its instantiation in an imaginary example that interprets it and the application of that theory to interpret historical experience. The latter does not test the model, but is the result of the organization of the record of events around this interpretive model. The instantiation in an imaginary example is a visualization that allows us to identify the inconsistencies in the model -if there are any- and to test general predictions about the behaviour of the variables. Such interpretations of the model assume that the rest of the variables remain unchanged, that is, the ceteris paribus condition.

If the abstract model does not have inconsistencies, i.e.: if in its imaginary interpretation, contradictory events do not arise, and, nevertheless, its explanatory or predictive power is contradicted with the experience, this does not imply a refutation. On the contrary, it is an indicator that another set of events are acting that neutralize the effects of the process described by the theory. In this case, although the theory does not achieve results in terms of explanations and predictions, it does fulfil a heuristic function: that is, it inspires new lines of research and discovery.

One such line of such lines is, for example, how politics plays out in the process of natural selection of social habits and practices. As indicated by the School of Public Choice, the regulations on economic activity that affect the distribution of corporate profits, assign monopolies, restrict imports, intervene in the market of credits and capital to favour certain activities over others, among others many cases of economic dirigisme encourage the development of practices known as “lobbying.” Investing in human capital and new technologies means an opportunity cost that will never be assumed if higher yields are obtained as a result of influencing government decisions that protect the producer from competition, or allowing the State to sell at a price higher than the market price. Therefore, if experience is indicating a low capacity for innovation, lack of initiative and stagnation, it is most appropriate to focus the observation on which incentives are acting effectively in that country.

The counterpart of the logical models is the empirical models, the latter consist of abstractions of elements that occur in reality, highlighting their common notes to obtain various classifications of such elements, and they are a simplified scheme of perceived reality. However, any system of abstraction of the common notes of a set of objects requires a prior conceptualization of such notes as defining a set or class. In order to classify diverse populations in countries, it is previously necessary to be in possession of the notion of population, for example.

On the other hand, abstract notions are not necessarily conformed by a deliberate operation of consciousness, but by the perception of series of events that are repeated and differentiated from one another, generating in the cognitive apparatus an association of diverse stimuli. Out of habit arises the expectation that from the appearance of a particular event or series of events a range of determined events will follow and not follow another range of events of various kinds. On these spontaneous classifications, articulated around the repetition of events, their differential in the system of stimuli of the nervous apparatus, and the predisposition generated by the habit of waiting and ruling out the consequent appearance of other events and stimuli is that consciousness is conformed and the cognitive apparatus of the knowledge subject.

But, likewise, those “spontaneous classifications” allow the appearance of an abstract set of functionally related notions whose ordering does not depend on a deliberate decision. These are the cases of norms with empirical observation and of what Douglass North called “informal institutions.” The value of the contribution of Friedrich Hayek in Law, legislation and Liberty consists in both the positive legal norms (deliberately created by the legislator) and the informal institutions that condition our conduct also depend for their enunciation of that abstract order of notions that it arises from pure experience.

These logical models -as they are abstract- that make up the consciousness and the cognitive apparatus of the subjects, are in permanent trial and error testing and, therefore, in continuous reformulation. It is a kind of negative feedback process in which the frustration of an expectation is corrected in the interpretative scheme of reality that the individual has, in a process of continuous readjustment. From the invariant reiteration of a certain series of events, a structure is formed that serves as a parameter to order other events of less frequency or more erratic behaviour.

To the extent that the subject continues its experimentation, the spontaneous classification system that makes up its consciousness becomes more complex, incorporating new ranges of events, adjusting its frequency and incorporating new structures. These are the relative limits of knowledge. They depend on the experimentation and the readjustment of the abstract patterns that allowed the subject to classify the events of reality.

However, knowledge can also grow in another direction: consciousness can focus not on the events that come from its perceptions but in the analysis of the classifications themselves. In this activity, the abstract classification schemes that had been shaped by habit do not apply to reality, but reflect on these classifications and extend and reformulate them, not in terms of their experience, but in virtue of their abstract speculation. This is the task of deliberately shaping the logical models to be applied to the interpretation of reality.

The elaboration of a legal theory -for example, about representation-, the description of a market structure -for example, monopolistic competition-, the outline of a sociological explanation -through the ideal types statement, to cite a case- , are situations in which the subject of knowledge does not experiment on events, but reformulates the classificatory systems that until then had arrived spontaneously. Knowledge in this case does not grow in specificity, but increases in levels of abstraction.

These are the cases in which the historian questions not only the interpretative frameworks he uses, but also the conditions that underlie these interpretative frameworks. The philosophy of science dabbled in the scientific paradigms (Thomas Kuhn), or in the research programs (Imre Lakatos), or in the great stories (Jean Francois Lyotard). The common denominator of these three concepts can be found in that they lack an “author,” they are inferences, true conjectures that we make about the framework in which a given scientific community develops tacitly.

Many interpret these currents of philosophy of science, although diverse, as relativistic, since they lend themselves to postulate that the statements of science are conditioned by the historical circumstances that serve as the frame of legitimation. There would not be a truth in itself, but a truth enunciated in a frame of reference. Another way to see it is to interpret these scientific communities structured around a set of practices, procedures, and validation rules whose origin is mainly spontaneous in a sort of “abstract discovery machines.”

In general, a series of physical devices conformed in a process of transforming inputs into exits is called a machine. But such physical devices are organized according to an abstract plane that assigns them functions for a certain process. This plane can be interpreted through mental operations without resorting to the construction of the physical machine, throwing said mental operations verifiable results; we are faced with an abstract machine. In recent times, the term “algorithm” has also been used to compare an information process that does not depend on the free will of the researchers, but consists in the follow-up of an automatic process.

In this line, Friedrich Hayek characterized competition as a process of discovery, that is, as an abstract machine that processes data and yields results that describe reality. In fact, the discovery would be the only function of a system of free competition that gives a differential over the rest of the systems. A monopoly, whose margins of profitability were controlled either by a maximum price or by a tax on profits, would be more efficient in terms of the production of a given good, than a set of small producers without market power and without scale. The scale of the monopolistic producer allows greater efficiency at a technological level than small producers competing with each other, being able to resolve economic inefficiency through regulatory or tax tools. However, in what a system of free competition is incomparably superior is in terms of the discovery process that drives its own dynamics. These are the benefits that innovation brings, as a consequence of an unanticipated system of free competition or competition, which far exceed all the supposed advantages of a regulated system.

It is this innovation that produces, most of the time involuntarily, an institutional system of free competition, called by Acemoglu & Robinson “inclusive economic institutions” – the one that allowed Hayek to characterize it as a process of discovery, in other words, as an abstract innovation machine.

This characterization of innovation processes through institutions that function as algorithms that produce new knowledge can also be extended to scientific communities and to the evolutionary process of legal norms.

[Editor’s note: you can find Part 4 here, and the full essay can be read in its entirety here.]

Nightcap

  1. The trend of economic thinking F.A. Hayek, Economica
  2. Against moderate politics Jason Sorens, Cato Unbound
  3. Socialist fantasies Sarah Skwire, EconLog
  4. “From the ashes, modernity arose, but at a cost” Thomas Lecaque, Age of Revolutions

Three Lessons on Institutions and Incentives (Part 7): Breaking the mold

This role of entrepreneurs also depends on an abstract characteristic of technological knowledge: it works in a manner contrary to that of most goods, since it is more productive to the extent that it is more widespread in the population. This characteristic of the abstract nature of technological knowledge is related to the phenomenon of the combination of skills (matching of skills): the negative side of creative destruction lies in substitution phenomena (a computer program of inventory management increases the productivity of work saving the salaries of the army of employees who used to carry them with pencil and paper), but the positive side comes from the phenomena of complementarity.

As William Easterly exemplifies, the cardiac surgeon will be more productive in a first world hospital, where he will have specialized nurses, other qualified doctors like him, a sophisticated system of hospital administration, and so on, being the only cardiac surgeon in a hospital. city ​​of the third world, where it does not have professionalized nurses, nor the help of other medical colleagues, working in a hospital in which he himself has to deal with administrative issues. If there were only substitution relations, it would be convenient for a doctor to practice his profession in the most remote place possible. However, as relations of complementarity of knowledge exponentially increase the productivity of the professionals involved, the doctor will find it more convenient to practice in a health center that has the largest number of doctors and paramedics possible.

The latter does lead to the phenomenon of “traps”: any rational agent, who maximizes the utility of their choices will be discouraged to deepen their studies if they perceive that they can not give any use to their education. There are the cases in which a person discovers that in his country there is no technology or the necessary number of professionals to develop a specific activity, or that, existing, you will find prohibited the exercise of their profession based on restrictions regarding their race, caste, social class, sex, etc. Since, rationally, a person who is included in a particular group under which he will be found forbidden or will be hindered the exercise of his profession, he will find as the most rational of their alternatives to abandon their studies, so that their chances of progress will no longer be limited only by legal or social barriers, but because of their lack of suitability for high-paying functions. Such are the so-called “poverty traps.”

There are also wealth traps. There are those cases in which the individual knows that he is within a favored group or in which he knows a large number of professionals and, therefore, invests time and money in his education because he knows that he has high chances of success, which will then be confirmed. Obviously, such phenomena of divergence generates another problem, addressed both by Easterly and by Daron Acemoglu & James Robinson, which is that of polarized societies.

Easterly affirms that it is the exchange of goods and services, through the mutual benefits that they report to the parties that participate in it, the main source of wealth generation. Where individuals are allowed to exchange, in a stable institutional framework with a stable currency, is where prosperity flourishes. However, Easterly recognizes that bad luck can devastate nations, as are the cases of geological and climatic phenomena such as earthquakes, tsunamis or mudslides, as well as recognizing that the situations of individuals involved in a poverty trap can only be resolved through an active public policy that not only provides education, but also establishes the conditions so that the recipients of that educational system can count on certain expectations that they will be able to apply that knowledge acquired through education and that, consequently, it is reasonable to study.

Just as the bad star can affect the economic performance of the countries, so can a favorable conjuncture, such as the case of a transitory improvement in terms of exchange of a given country. But this favorable circumstance can become a counter-march. Easterly explains that, for a simple statistical matter, it is very difficult for both a nation and an individual to always remain on the crest of the wave, over the years everything tends to return to the average. The problem occurs when a country -or a person, too- got used to a certain level of spending in the boom years and intends to maintain it through debt or emisionism. We come to the cases in which, according to Easterly, the government can “kill the growth.” Public debt and inflation generate capital consumption and, consequently, poverty.

Another way that governments have to discourage growth is through corruption. Not only because it means a transfer of resources from productive activities to unproductive activities, but because it also means a bad signal for citizens. However, in cases of corruption, as noted above, wealth at least changes hands. There is another case, even more pernicious, in which the government’s actions, whether motivated by corruption or inspired by good intentions, destroy wealth, without even redistributing it: this is the case of inconsistent public policies derived from highly polarized societies.

Public policies that aim to favor a given industry, but at the same time need to agree on measures with other sectors of the economy, whose purpose is to compensate for the losses generated by those policies, can lead to a tangle of inconsistent regulations that, instead of transfer riches from one sector to another, directly destroy them. For example: exchange controls harm the export sector, since they generate black markets. The exporters will have costs that will be partly quoted according to the black market prices (which are higher) and they will have to liquidate the value of their exports at the official exchange rate, which will be lower. Regulations of this kind may not involve acts of corruption, but they do destroy wealth, which there is no way to recover.

Easterly lists numerous examples of everything that needs to be done to destroy growth. However, there is something that deserves to be especially highlighted: the progress or stagnation of nations does not depend on educational, cultural or geographic factors, but rather on the incentive framework that predominates. This incentive framework will always be abstract, that is, it can be applied at any time and place.

[Editor’s note: Here is Part 6, and here is the entire, Longform Essay.]

In Defense of Not Having a Clue

Timely, both in our post-truth world and for my current thinking, Bobby Duffy of the British polling company IPSOS Mori recently released The Perils of Perception, stealing the subtitle I have (humbly enough) planned for years: Why We’re Wrong About Nearly Everything. Duffy and IPSOS’s Perils of Perception surveys are hardly unknown for an informed audience, but the book’s collection and succint summary of the psychological literature behind our astonishingly uninformed opinions, nevertheless provide much food for thought.

Producing reactions of chuckles, indignation, anger, and unseeming self-indulgent pride, Duffy takes me on a journey of the sometimes unbelievably large divergence between the state of the world and our polled beliefs about the world. And we’re not primarily talking about unobservable things like “values” here; we’re almost always talking about objective, uncontroversial measures of things we keep pretty good track of: wealth inequality, share of immigrants in society, medically defined obesity, number of Facebook accounts, murder and unemployment rates. On subject after subject, people guess the most outlandish things: almost 80% of Britons believed that the number of deaths from terrorist attacks between 2002 and 2016 were more or about the same as 1985-2000, when the actual number was a reduction of 81% (p. 131); Argentinians and Brazilians seem to believe that roughly a third and a quarter of their population, respectivelly, are foreign-born, when the actual numbers are low single-digits (p. 97); American and British men believe that American and British women aged 18-29 have had sex as many as 23 times in the last month, when the real (admittedly self-reported) number is something like 5 times (p. 57).

We can keep adding astonishing misperceptions all day: Americans believe that more than every third person aged 25-34 live with their parents (reality: 12%), but Britons are even worse, guessing almost half (43%) of this age bracket, when reality is something like 14%; Australians on average believe that 32% of their population has diabetes (reality more like 5%) and Germans (31% vs 7%), Italians (35% vs 5%), Indians (47% vs 9%) and Britons (27% vs 5%) are similarly mistaken.

The most fascinating cognitive misconception is Britain’s infected relationship with inequality. Admittedly a confusing topic, where even top-economists get their statistical analyses wrong, inequality makes more than just the British public go bananas. When asked how large a share of British household wealth is owned by the top-1% (p. 90), Britons on average answered 59% when the reality is 23% (with French and Australian respondents similarly deluded: 56% against 23% for France and 54% against 21% for Australia). The follow-up question is even more remarkable: asked what the distribution should be, the average response is in the low-20s, which, for most European countries, is where it actually is. In France, ironically enough given its current tax riots, the respondents’ reported ideal household wealth proportion owned by the top-1% is higher than it already is (27% vs 23%). Rather than favoring upward redistribution, Duffy draws the correct conclusion:

“we need to know what people think the current situation is before we ask them what they think it should be […] not knowing how wrong we are about realities can lead us to very wrong conclusions about what we should do.” (p. 93)

Another one of my favorite results is the guesses for how prevalent teen pregnancies are in various countries. All of the 37 listed countries (p. 60) report numbers around less than 3% (except South Africa and noticeable Latin American and South-East Asian outliers at 4-6%), but respondents on average quote absolutely insane numbers: Brazil (48%), South Africa (44%) Japan (27%), US (24%), UK (19%).

Note that there are many ways to trick people in surveys and report statistics unfaithfully and if you don’t believe my or Duffy’s account of the IPSOS data, go figure it out for yourself. Regardless, is the take-away lesson from the imagine presented really that people are monumentally stupid? Ignorant in the literal sense of the world (“uninstructed, untututored, untaught”), or even worse than ignorant, having systematically and unidirectionally mistaken ideas about the world?

Let me confess to one very ironic reaction while reading the book, before arguing that it’s really not the correct conclusion.

Throughout reading Duffy’s entertaining work, learning about one extraordinarily silly response after another, the purring of my self-indulgent pride and anger at others’ stupidity gradually increased. Glad that, if nothing else, that I’m not as stupid as these people (and I’m not: I consistently do fairly well on most questions – at least for the countries I have some insight into: Sweden, UK, USA, Australia) all I wanna do is slap them in the face with the truth, in a reaction not unlike the fact-checking initiatives and fact-providing journalists, editorial pages, magazines, and pundits after the Trump and Brexit votes. As intuitively seems the case when people neither grasp nor have access to basic information – objective, undeniable facts, if you wish – a solution might be to bash them in the head or shower them with avalanches of data. Mixed metaphors aside, couldn’t we simply provide what seems to be rather statistically challenged and uninformed people with some extra data, force them to read, watch, and learn – hoping that in the process they will update their beliefs?

Frustratingly enough, the very same research that indicate’s peoples inability to understand reality also suggests that attempts of presenting them with contrary evidence run into what psychologists have aptly named ‘The Backfire Effect’. Like all force-feeding, forcing facts down the throats of factually resistent ignoramuses makes them double down on their convictions. My desire to cure them of their systematic ignorance is more likely to see them enshrine their erroneous beliefs further.

Then I realize my mistake: this is my field. Or at least a core interest of the field that is my professional career. It would be strange if I didn’t have a fairly informed idea about what I spend most waking hours studying. But the people polled by IPSOS are not economists, statisticians or data-savvy political scientists – a tenth of them can’t even do elementary percent (p. 74) – they’re regular blokes and gals whose interest, knowledge and brainpower is focused on quite different things. If IPSOS had polled me on Premier League results, NBA records, chords or tunes in well-known music, chemical components of a regular pen or even how to effectively iron my shirt, my responses would be equally dumbfunded.

Now, here’s the difference and why it matters: the respondents of the above data are routinely required to have an opinion on things they evidently know less-than-nothing about. I’m not. They’re asked to vote for a government, assess its policies, form a political opinion based on what they (mis)perceive the world to be, make decisions on their pension plans or daily purchases. And, quite a lot of them are poorly equipped to do that.

Conversely, I’m poorly equipped to repair literally anything, work a machine, run a home or apply my clumsy hands to any kind of creative or artful endeavour. Luckily for me, the world rarely requires me to. Division of Labor works.

What’s so hard with accepting absence of knowledge? I literally know nothing about God’s plans, how my screen is lit up, my car propels me forward or where to get food at 2 a.m. in Shanghai. What’s so wrong with extending the respectable position of “I don’t have a clue” to areas where you’re habitually expected to have a clue (politics, philosophy, virtues of immigration, economics)?

Note that this is not a value judgment that the knowledge and understanding of some fields are more important than others, but a charge against the societal institutions that (unnaturally) forces us to. Why do I need a position on immigration? Why am I required (or “entitled”, if you believe it’s a useful duty) to select a government, passing laws and dealing with questions I’m thoroughly unequipped to answer? Why ought I have a halfway reasonable idea about what team is likely to win next year’s Superbowl, Eurovision, or Miss USA?

Books like Duffy’s (Or Rosling’s, or Norberg‘s or Pinkers) are important, educational and entertaining to-a-t for someone like me. But we should remember that the implicit premium they place on certain kinds of knowledge (statistics and numerical memory, economics, history) are useful in very selected areas of life – and rightly so. I have no knowledge of art, literature, construction, sports, chemistry or aptness to repair or make a single thing. Why should I have?

Similarly, there ought to be no reason for the Average Joe to know the extent of diabetes, immigration or wealth inequality in his country.

Nightcap

  1. Making sense of Japan’s new immigration policy Emese Schwarcz, Diplomat
  2. Deportations with benefits Irfan Khawaja, Policy of Truth
  3. Democracy as an information system Henry Farrell, Crooked Timber
  4. Against debate Chris Dillow, Stumbling & Mumbling

 

 

 

The Negative Capability of a Good Legislator

In a former post, we had explored the idea of considering the law as an abstract machine which provides its users with information about the correct expectancies about human conduct that, if fulfilled, would contribute to the social system inner stability (here). The specific characteristic of the law working as an abstract machine resides in its capability of dealing with an amount of information more complex than human minds. This thesis had been previously stated by Friedrich Hayek in his late work titled “Law, Legislation and Liberty”, aimed to provide the foundations to a proposal of an constitutional reform that would assure the separation of the law from politics -not in the sense of depriving politics from the rule of law, but to protect law from the interference of politics.

Paradoxically, the said opus had many unintended outcomes that surpassed the author’s foresight. One of them was the coinage of the notion of “Spontaneous Order”, which Hayek himself regretted about, because of the misleading sense of the word “spontaneous”. At the foreword of the third volume of the cited “Law, Legislation and Liberty”, he explained why he would prefer to use of the term of “Abstract Order”. Notwithstanding its creator’s allegations, the label of “Spontaneous Order” gained autonomy from him in the realm of the ideas (for example, here).

Why better “abstract order” than “spontaneous”? Because while no “concrete order” might be spontaneous, we could nevertheless find normative systems created by human decision, besides the spontaneous ones (see “Law, Legislation and Liberty”, Chapter V). Moreover, we do not see spontaneous orders whose rules fail to provide stability to the system, because of “evolutionary matters”: such orders could not endure the test of time. Nevertheless, for the same reason, we could imagine a spontaneous order whose rules of conduct became obsolete due to a change in the environment and, thus, fails to enable the social system with the needed stability.

Spontaneity is, thus, not the central characteristic of the law as a complex order. What delimits law from a “concrete order” is the level of abstraction. An alternative name given by Hayek to designate the concrete orders was the Greek term “taxis”, a disposition of soldiers for battle commanded by the single voice of the general. Concrete orders could be fully understood by the human mind and that is why they are regarded as “simple phenomena”: the whole outcome of their rules could be predicted by a system of equations simpler than the human mind.

Notwithstanding a single legislator could sanction a complete set of rules to be followed by the members of a given society, the inner system of decision making of those individuals are more abstract that the said set of rules and, thus, the human interactions will always result in some subset of unintended consequences.

These unintended consequences should not necessarily be regarded as deviations from the social order, but indeed as factors of stabilisation -and, thus, all abstract orders are, in some sense, still spontaneous. These characteristics of the law as a complex order concern on the information about the final configuration of a society given a certain institutional frame: we can establish the whole set of institutions but never fully predict its final outcome. At this stage, we reach what Hayek called in The Sensory Order “an absolute limit to knowledge”.

We now see that the legislator could sanction a complete system of rules -a system that provides solutions for every possible concrete controversy between at least two contenders-, but he is unable to be aware of the full set of consequences of that set of rules. We might ascertain, then, that being enabled with a “negative capability” to anticipate the outcome of the law as a complex phenomenon is a quality to be demanded to a good legislator.

By this “negative capability” we want to designate some understanding of the human nature that allows to anticipate the impact of a given norm among the human interactions. For example, simple statements about human nature such as “people respond to incentives”, or “all powers tend to be abusive”. These notions that are not theoretical but incompletely explained assumptions about human nature are well known in the arts and literature and constitute the undertow of the main narratives that remain mostly inarticulate.

Precisely, as Hayek stated, every abstract order rests upon a series of inarticulate rules, some of which might be discovered and  later articulated by the judges, while other rules would remain inarticulate despite being elements of the normative system.

However, we praise Negative Capability as a virtue to be cultivated by the legislator, not by the judge. The function of the judge is to decide about the actual content of the law when applied to a particular case. It is the legislator the one who should foresee the influence to be exerted by the law upon a general pattern of human behaviour.

Notwithstanding Negative Capability could be dismissed in order of not being a scientific concept, this negative attribute is one of its main virtues: it means lack of ideology, in the sense given to that term by Kenneth Minogue. While an ideological political discourse reassures itself in a notion of scientific truth, at least a legislator inspired by common and humble ideas about human nature would be free from that “pretence of knowledge”.

Legal Immigration Into the United States (Part 17): Merit-Based Immigration and Other Solutions

The long-established numerical prominence of immigration into the US via family relations makes it difficult to distinguish conceptually between legal immigration responding to matters of the heart and immigration that corresponds to hard economic, and possibly, demographic facts. The one motive has tainted the other and vice-versa. The current public discussions (2016-2018) suggest that many native-born Americans think of immigration as a matter of charity, or of solidarity with the poor of this world, as in the inscription at the foot of the Statue of Liberty: “Give me your tired, your poor, your huddled masses yearning to breathe free,….”  Many Americans accordingly perceive as hard-hearted those who wish to limit or reduce immigration. Inevitably, as whenever the subject of hard-heartedness emerges as a topic in politics, a Right/Left divide appears, always to the detriment of the former.

It seems to me that conservatives are not speaking clearly from the side of the divide where they are stuck. They have tacitly agreed to appear as a less generous version of liberals instead of  carriers of an altogether different social project. Whatever the case may be, the politically most urgent thing to do from a rational standpoint is to try and divide for good in public opinion, immigration for the heart and immigration for the head, immigration for the sake of generosity and immigration for the benefit of American society. Incidentally, and for the record, here is a digression: I repeat that I believe that American society has a big capacity to admit immigrants under the first guise without endangering itself. That can only happen once the vagueness about controlling our national boundaries has dissipated. Such a strategy requires that the Federal Government have the unambiguous power to select and vet refugees and to pace their admission to the country.

“Merit” Defined

In reaction to the reality and also, of to abuses associated with the current policy, a deliberate, and more realistic doctrine of immigration has emerged on the right of the political spectrum. It asks for admission based on merit, partly in imitation of Australia’s and Canada’s. Canada’s so-called “Express Entry System” is set to admit more than 300,000 immigrants on the basis of  formally scored merit in 2118. That’s for a population of only about 37 million. The central idea is to replace the current de facto policy favoring family relations as a ground for admission, resulting in seemingly endless “chain migration,” with something like a point system. The system would attempt scoring an immigrant’s potential usefulness to American society. In its simplest form, it would look something like this: high school graduate, 1 point; able to speak English, 1 point; literate in English, 1 more point; college graduate, 2 points (not cumulative with the single point for being a high school graduate); STEM major, 2 points; certified welder, 2 points; balalaika instructor, 2 points. Rocket scientist with positive record, 5 points.  Certified welder, 10 points.

The sum of points would determine the order of admission of candidates to immigration into the US for a set period, preferable a short period because America’s needs may change fast. With the instances I give, this would be a fair but harsh system: Most current immigrants would probably obtain a score near zero, relegating them to eternal wait for admission.

There are two major problems with this kind of policy. First, it would place the Federal Government perilously close to articulating a national industrial policy. Deciding to give several point to software designers and none to those with experience running neighborhood grocery stores, for example, is to make predictions about the American economy of tomorrow. From a conservative standpoint, it’s a slippery slope, from a libertarian standpoint, it’s a free fall. Of course, we know how well national industrial policies work in other countries, France for example. (For 25 years, as a French-speaking professor on the spot, visiting French delegations to my business school would take me aside; they would buy me an expensive lunch and demand that I give away the secret of Silicon Valley. First, create a first rate university, I would answer meanly…)

Second, the conceit that a merit-based system of admission, any merit-based system, is an automatic substitute for the family reunion-dominated current policy is on a loose footing. Suppose, a Chinese woman receives top points in the new system as a world-class nuclear scientist whose poetry was nominated for a Nobel in literature. She walks right to the head of the line, of course. But she is married and she and her husband have three children. Can we really expect her to move to the US and leave her family behind? Do we even want her to, if we expect her to remain? Does anyone? Then, the woman and her husband both turn out to be busy as bees and hard workers, major contributors to the US economy, and to American society in general. (They are both also engaged in lively volunteering.) So, they need help with child care. The husband’s old but still healthy mother is eager and willing to come to live with the couple. She is the best possible baby-sitter for the family. The problem is that the old lady will not leave her even older husband behind. (And, again, would we want her here if she were the kind to leave him?)

Here you go, making ordinary, humane, rational decisions, the merit-based admission of one turns into admission of seven! And, I forgot to tell you: Two of the kids become little hoodlums, as happens in the best families in the second generation. They require multiple interventions from social services. They will both cost society a great deal in the end. In this moderate scenario, the attempt to rationalize immigration into a more selfish policy benefiting Americans has resulted in a (limited) reconstitution of the despised chain immigration, with some of the usual pitfalls.

The arguments can nevertheless be made that in the scenario above, the new merit-based policy has resulted in the admission of upper-middle class individuals rather than in that of the rural, poorly educated immigrants that the old policy tended to select for. This can easily be counted as a benefit but the whole story is probably more complicated. In the exact case described above, the US did replace lower-class individuals with upper-middle class people but also with people possibly of more alien political culture, with consequences for their eventual assimilation. I mean that all Mexicans tend to be experts in Americana and that our political institutions are familiar to them because theirs are copy-cat copies of ours. I surmise further that Mexicans are unlikely from their experience to expect the government to be mostly benevolent. Moreover, it seems to me the children of semi-literate Mexicans whose native language is fairly well related to English and uses the same alphabet, are more likely to master English well than even accomplished Chinese. This is a guess but a well-educated teacher’s guess. (I don’t think this  holds true for the grand-children, incidentally.) Of course, if my argument is persuasive, there would be a temptation to down-score candidates just for being Chinese, pretty much the stuff for which Harvard University is on trial as I write (October 2018).

I described elsewhere how the fact of having relatives established in the country facilitates installation and economic integration, even as it may retard assimilation. Note that a point system does not have to forego the advantages associated with family relationships. Such a system can easily accommodate family and other relationships, like this: adult, self-sufficient offspring legally in the US: 3 points; any other relation in the US: 1 point; married to a US resident with a welder certification: 15 points, etc.

[Editor’s note: in case you missed it, here is Part 16]

Should you vote today? Only if you want to.

Today is election day in the United States and everywhere I turn I see “get out the vote” ads. Even on Facebook my feed is filled with people urging others to vote. I am fine with these nudges insofar that they are just that – nudges.

I am concerned when I see claims that voting is one’s duty. I am especially concerned when I see claims that, if you don’t vote, you are allowing the evil [socialists/white men/etc] to govern. These claims concern me because they respectively promote worship of the state and tribalism.

There is more to life than being a politico. If Americans at large sacrificed their other activities in order to become fully informed voter-activists, we would be a boring lot. If you enjoy politics, go vote, but you needn’t feel superior over someone who thinks their time would be better spent playing music or grabbing a beer with friends after work. Life is short and should be spent doing what one enjoys.

Likewise, it is perfectly okay to have an opinion on how government should be run. I, and I imagine most NoL readers, have strong policy preferences. It is however beyond arrogance to believe that an educated person can only believe X and only a mustached villain would believe Y. To be clear, I am not saying that truth is relative.

NIMBYist policies lead to housing shortages, that is a fact. I am in favor of revising zoning regulations and ending parking subsidies to mitigate the problem. I don’t think that the family that owns a detached unit in Santa Monica and opposes denser development is evil though. I understand their hesitance to see their neighborhood changed.

If you wish to vote today, please do so but please don’t act like a snob towards those who do not. Express your policy preferences, but leave your holier than thou attitude at home.

Tldr; play nice.

Legal Immigration Into the United States: The H-1B Visas Confusion and Controversy (Part 2 of 6)

This is the right place for a painful digression. It’s painful because it’s about a program related to immigration that is both confusing and calculated, as if by design, to become controversial. Yet, as I argue below, toward the end of this essay, it’s a program with promise.

Many middle-class foreigners with college degrees are in the US on temporary working visas. By numbers, the main category of working visas is the H-1B visa. (This is confusing, but there is currently no such thing as an H-1A visa.) Holders of the H-1B visa must meet specific educational qualifications. They are sponsored by American employers – but also by employers who look much like labor contractors based abroad. They may stay in the US for a period of three years, renewable for an additional three years. That’s except if they work for a university or for a research institute, in which case their visa is pretty much eternal. Although the number of visas allotted each year is capped, by accumulation, the program involves significant numbers of people, about 350,000 in 2016. Some or most H-1B visas are allocated by lottery on an annual basis. (It’s completely separate from the diversity lottery described above [in Part 1], as I said.)

The rationale behind the H-1B visa is to supply workers in specialties that industrial and other organizations cannot find domestically. The program is controversial for two reasons. Continue reading

China-Myanmar Economic Corridor and the limits of ‘Cheque Book Diplomacy’

On September 9, 2018 Myanmar and China signed a memorandum of understanding (MoU) for establishing the China-Myanmar Economic Corridor (CMEC), as part of China’s ambitious Belt and Road Initiative (BRI). The corridor will traverse a distance of approximately 1700 kilometres and seeks to connect Kunming (in China’s Yunnan Province) with Myanmar’s key economic points – Mandalay, Yangon, and Kyauphkyu.

According to the MOU, both sides have agreed to collaborate in a number of areas. Some of the important areas identified for collaboration by both countries are: infrastructure, construction, manufacturing, agriculture, transport, finance, human resources development, telecommunications, and research and technology.

Chinese Foreign Minister Wang Yi had first announced the proposal to build CMEC during his meeting with Myanmar’s State Counselor Aung San Suu Kyi in November 2017. The MOU had been finalized in February 2018.

The CMEC is an ambitious project from which Myanmar could benefit immensely. Yet, there have been apprehensions with regard to the economic feasibility of the project, and Myanmar does not want to meet the fate of other countries which have fallen into what has been dubbed as a ‘Debt Trap’.

Opposition to Kyauphkyu

There has been skepticism with regard to the BRI project in general, and China’s involvement in the SEZ and Sea Port to be set up in Kyauphkyu (a coastal town in the Rakhine Province) in particular. Large sections of the population have been questioning the economic rationale of the project – and the benefits for Myanmar. CITIC (China’s biggest financial conglomerate) was awarded both projects, but it had to reduce its stake from 85 percent to 70 percent in the Sea Port after vehement opposition from the local population. Locals found the 85-15 arrangement unreasonable. Fearing a debt trap, the NLD government in Myanmar has also reduced the initial value of the Sea Port project – a whopping $7.3 billion USD to $1.3 billion. There has been opposition to the SEZ as well (mainly on environmental grounds), and while the initial Chinese take in the SEZ (originally valued at $2.7 billion) was 51 percent, it is likely to be revised.

U Kan Zaw, a Minister in the erstwhile Than Sein government (and Chairman of the Kyauphkyu SEZ tender committee), confessed that Myanmar was not very keen for Chinese investment (it had sought investments from the UK and Europe), but it was not left with any other option once other countries declined to invest.

China beginning to acknowledge shortcomings of BRI projects

Of late Beijing has expressed a willingness to re-examine some aspects of BRI-related projects (including CMEC and the China Pakistan Economic Corridor – CPEC). On the face of it, at least Beijing seems open to addressing the worries of countries which are part of the BRI.

Chinese media itself is trying to send a message that Beijing is responsive to concerns of countries which are part of the BRI initiative. A recent example is an article in CGTN on CMEC, which acknowledged not just the drawbacks of the project, but also the fact that the response to CMEC has been tepid so far in Myanmar. Said the article:

CMEC is temporarily suffering from a cold reception, we believe that it is an excellent endeavor.

The authors of the article also makes a significant point: that Chinese businessmen are not familiar with Myanmar. While the article could be referring to the lack of familiarity with Myanmar’s policies, many host countries have been critical not just of the ‘one sided’ nature of Chinese economic investments, but their unwillingness to understand local cultures, and the fact that they remain aloof from the local population.

On a number of occasions, Chinese businessmen have even misbehaved with locals. In Pakistan, on two occasions, Chinese businessmen have beaten up policeman, and this did not go down well with the local population.

While alluding to the failure of big ticket infrastructure projects, the article also refers to the need for Chinese investments in ‘light industry’ as opposed to ‘heavy industry’ (in a reference to infrastructural mega projects, such as those which were scrapped by Malaysian Prime Minister Mahathir Mohammad).

One of the interesting aspects of CMEC is that Myanmar was keen to have third party investments, and not restrict itself only to Chinese investments. Investments will come from countries in South East Asia and East Asia — Thailand, South Korea, and Japan. While China’s economic presence in Myanmar is staggering, this has not gone unchallenged and of late countries like South Korea are also increasing their presence in Myanmar. The authors of the CGTN article also try to pitch for Chinese cooperation with other countries, arguing that joint investments will mean not only lesser economic and political burden for China, but that they could also reduce hostilities between Western and Chinese companies.

Finally, the article speaks about the need for greater cooperation between Myanmar and China in the sphere of agriculture (especially aquaculture), and that this cooperation should be economically beneficial for the local population.

Conclusion

It remains to be seen whether China will actually acknowledge the genuine concerns of countries participating in the BRI, and whether or not it will actually take some tangible steps to address the apprehensions. As stated earlier, Beijing seems slightly more flexible in its negotiations, but whether this is a short term trend (which many would argue is a consequence of Malaysian PM Mahathir Mohammad’s straight talking with China) or not remains to be seen.

China may be further compelled to change its approach towards overseas economic investments after the recent electoral rout of Abdulla Yameen (outgoing Maldivian President), considered to be pro-China. One trend which is clearly emerging, as was evident from the electoral verdict of Maldives, was that leaders (many of whom position themselves as strongmen) blindly following Chinese diktats for short term economic goals does not go down well with ordinary citizens, and China may need to address its perception problem by looking beyond Cheque book Diplomacy.