Saturday, December 20, 2008

Don't Follow the Money

Attempts are often made to "explain" financial downturns with the metaphor, "the economy is like an engine, and sometimes it overheats". This is more of a STFU than an actual explanation. No attempt is made to explain in what sense the economy resembles an engine, nor why it should overheat, or what that even means. There is perhaps an implication that there should be a "cooling off" period after a "boom", but no meaningful explanation as to why that should be so. The content essentially boils down to "shit happens". Shit does happen, but it doesn't JUST happen.

I think a great deal of confusion is caused by people being distracted by money valuations. Even when a dollar referred to a specific quantity of metal, the purchasing power of a dollar would vary over time. Now that a dollar doesn't mean anything in particular, it is particularly foolish to act as if a valuation in dollars is anything like a "true" measure of value.

Of course, there isn't and can't be a single number which is an absolutely true measure either of stored value or of productive capacity. The relative values of goods and services will change unpredictably over time, and there are no generic factories but rather there is the capacity to produce particular goods and services.

A speculative bubble happens when there is an unsustainable accelerating increase in the relative value of some kind of good or service. There are two related phenomena which characterize a speculative bubble. First, there is a great deal of illusory wealth. Income producing assets such as stock or rental property, are valued far above what they "should" be worth based on the actual amount of income they produce based on the belief that their future valuations will rise still higher. Second, there is a misallocation of resources toward production both of the overvalued goods and services themselves and of increasing the capacity to produce them still further.

There are two important points here. First, the "losses" incurred at the "bust" at the end of a "boom" are inevitable, because much of the wealth was never really there in the first place. Second, there is not and cannot be such a thing as a generic boom. The world has never had a problem with too much productive capacity for everything, and it is doubtful that it could. Excess productive capacity for certain goods can be harmful to those who possess skills or equipment which are useful only for producing those goods, but their problem is not so much that too many other people can produce what they can as that they can't competitively produce anything else either.

Saturday, December 13, 2008

The Left

Many years ago on Usenet a remember reading a post by a Muslim who argued that, although the Koran in English may seem unimpressive, if one were to read it in the original Arabic one would be convinced that it must be the direct word of God, that it is such sublime poetry that it could not have been written by a mere man. I wasn't an active participant in that particular thread, just a reader, but the argument made an impression on me because it so clearly illustrated a principle. It seemed absurd that the poster would expect his readers to go to the trouble of learning Arabic just to refute him, and yet in principle there was nothing really wrong with his argument, nor was there any real way he could make it without expecting the other participants to learn Arabic. I had perhaps been somewhat suspicious of the assertion that one should investigate all ideas for one's self rather than merely relying on the judgments of others, but never before had it been so clear what an utter crock it is; there isn't time, wouldn't be sufficient time in a thousand lifetimes, to actually examine all possibilities sufficiently, even if one restricted examination to ideas with a substantial number of adherents.

This post is not about the political left, but rather about the left side of the intelligence curve, and not just the left tail, or even the left half, but more like the bottom 95%, and perhaps in some cases still more. That is, nearly everyone.

I have a pretty high opinion of my own intelligence, but although I'm samrter than the average bear, I know that there are millions of people in the world who are at least approximately as smart as I am, and some of them are substantially smarter. Occasionally I have come across an argument that seemed sufficiently complicated that not only was I unwilling to devote the time and effort to puzzle it through, I thought perhaps it might be beyond my ability to follow (and I'm not counting cases where the author is deliberately being obscure). I can't remember the particular incidence, but I do remember once being shocked by the insight: most people are like that all the fucking time.

There are important implications of this. First, people are generally being sensible when they dismiss unconventional or outlandish ideas as "nonsense". Most such ideas are nonsense, and most people are incapable of distinguishing the occasional profound insight from madness, Either they can't do it all, or they can't do it within the constraints of time and effort the idea seems to deserve. Second, that when new ideas do overtake the old, it happens not so much because everyone is convinced as an individual of the truth of the new idea as that an influential few embrace the new idea and the rest follow "expert" opinion. That's all they can do. Finally, if an idea is popular with the most influential members of a society it is likely to become regarded as "true" regardless of the idea's actual merits. This is, I think, true in all societies, but particularly those like ours which have a reasonably well defined class of professional intellectuals.

It follows that it's generally a waste of time trying to persuade the masses of anything new by argument. The following one can get will depend more on one's skill as a persuader than on the quality of one's ides, and in any case that following will remain small unless one has the support of the influential ones.

But where argument fails, demonstration may succeed. Technology advances because the new methods can be directly observed to be better at accomplishing desired aims than were the old methods, or even are capable of accomplishing that which could not be done before.

Sunday, December 7, 2008

The Cost of Conflict

There are two opposite opinions as to what the cost of violent conflict ought to be. One side holds that war or something like war is inevitable, and therefore that it is desirable that there be such a thing as "rules of war" which are designed to minimize the length of war, the damage done, and the impact on nonbelligerents. This idea is the inspiration for such things as the Geneva Convention. The opposite view is that the high cost of war itself is a major impediment to war, and that peace is only likely if each side of a potential conflict realizes that it will lose more than it can gain in the event of an actual outbreak of hostilities. This idea has led to, among other things, the doctrine of mutually assured destruction.

I think most people would agree that neither extreme is really satisfactory. What's missing is a moral dimension. It's true that the stronger side may back down from a potential conflict on the grounds that the costs of victory exceed the rewards, and most people would regard this as a good thing, but only when the stronger party is in some sense the aggressor. For something like MAD to work, there must be enough sense of agreement on moral questions that it is usually reasonably clear which side "ought" to back down. If it become simply a question of who "blinks" first, with the reward going to the more reckless player, eventually a conflict will come in which neither side will "blink" until it is too late.

Voting can be considered as a form of nearly costless battle, with all that implies: people attempt to enforce their will upon others in whatever asinine way that pops into their minds. My personal favorite example is the California ballot initiative banning horsemeat for human consumption. It doesn't do the horses any good. Retired horses are made into dog food, it's hard to see why being made into human food would be worse for them. Then again, the ban doesn't do any practical harm. Nobody in California was eating hoses pre-ban anyway. If the people advocating forbidding other people from eating horse knew they would have to personally enforce their ban with guns, the whole idea wouldn't even have come up for discussion. Of course, nobody would fight for the right of others to eat horse either, but I think people would fight to avoid a situation where a numerical majority could micromanage their lives in arbitrary ways, if the issue was put to them in such a straightforward way. As it was, of course, that wasn't at issue. As far as the state is concerned, the principle has been completely established that any law, no matter how intrusive or pointless, is valid so long is it is enacted by the proper procedure.