The claim is sometimes made that it is impossible for black people to be racist, because racism is an exercise of power, and white people have all the power.
This is nonsense, and obviously so. Of course it is possible for a black person to assault a white person for no reason other than his race. Racial bigotry does not have to be complicated.
The specific claim that racism is always an exercise of power is as wrong as the claim that rape is about power (instead of sexual pleasure and the evolutionary imperative towards reproduction). Racism can be simple bigotry.
The specific claim that white people have all the power in a nebulous "structural" way is false. Power is not held by "white people" as a class. One white person can have less power than one black person.
The claim that only whites can be racist is really a rhetorical technique to get white people to shut up and accept racism against them, whether it be personal bigotry and violence, or a political attempt to take money and property from white people as a class, or "positive discrimination" and "affirmative action" against white people.
Publicly identifying it as purely a rhetorical technique and not a serious idea robs it of some of its power.
Saturday 19 October 2019
Anti-men rhetorical technique
The claim is sometimes made that men should not be allowed to speak about women's issues. Only a woman can truly know what it is like to be a woman, because of her lived experience. Knowledge and empathy/imagination are deemed worthless.
The same claim is made regarding race.
One wonders what is the point of women explaining to men what it is like to be a woman, if men will be incapable of understanding, and are not allowed to make any use of such knowledge.
An implication of this is that women should refrain from opining about masculinity and men's issues.
This style of thought is pernicious because anything can be deemed a "woman's issue" and men told to shut up about it, even if it concerns them. For example, whether a woman has an abortion or not concerns and affects the father, who may wish to keep the child, or who may not want to keep and pay for it.
This is really a rhetorical technique, and its aim is to tell white men to shut up. It is an attempt to define the terms of debate to make them completely one-sided. Publicly identifying it as purely a rhetorical technique and not a serious idea robs it of some of its power.
The same claim is made regarding race.
One wonders what is the point of women explaining to men what it is like to be a woman, if men will be incapable of understanding, and are not allowed to make any use of such knowledge.
An implication of this is that women should refrain from opining about masculinity and men's issues.
This style of thought is pernicious because anything can be deemed a "woman's issue" and men told to shut up about it, even if it concerns them. For example, whether a woman has an abortion or not concerns and affects the father, who may wish to keep the child, or who may not want to keep and pay for it.
This is really a rhetorical technique, and its aim is to tell white men to shut up. It is an attempt to define the terms of debate to make them completely one-sided. Publicly identifying it as purely a rhetorical technique and not a serious idea robs it of some of its power.
Ignore bad people's emotions
When resolving a dispute, one should not give much weight to someone's expressed emotions. One can pretend to be upset as a way to getting what one wants. Trivers' theory of evolutionary self-deception says that the most effective way to fake being upset is to really be upset. That is the purpose of emotions: a person is motivated by their emotions because those emotions are real.
So a third party mediator should not try to distinguish between a person who is faking an emotion, and someone really experiencing it.
When Larry Summers gave a speech about differences between men and women, an MIT biology professor Nancy Hopkins said "I felt I was going to be sick", "my heart was pounding and my breath was shallow", "I just couldn't breathe, because this kind of bias makes me physically ill". She had to leave the room because otherwise "I would've either blacked out or thrown up."
Hopkins was clearly deliberately trying to damage Summers' career, and genuinely experiencing these emotions.
A person claiming to experience these emotions likely really is experiencing them, and that's unfortunate, but such behaviour should not be rewarded and reinforced.
So a third party mediator should not try to distinguish between a person who is faking an emotion, and someone really experiencing it.
When Larry Summers gave a speech about differences between men and women, an MIT biology professor Nancy Hopkins said "I felt I was going to be sick", "my heart was pounding and my breath was shallow", "I just couldn't breathe, because this kind of bias makes me physically ill". She had to leave the room because otherwise "I would've either blacked out or thrown up."
Hopkins was clearly deliberately trying to damage Summers' career, and genuinely experiencing these emotions.
A person claiming to experience these emotions likely really is experiencing them, and that's unfortunate, but such behaviour should not be rewarded and reinforced.
Politicisation and legalisation of manners
Manners are about not making other people feel uncomfortable. The rules of manners are voluntary and negotiated -- maybe you want to make someone feel uncomfortable. Sometimes it might be impossible to avoid making one person uncomfortable without making another person uncomfortable.
There is a trend in political correctness aim to replace voluntary manners with power.
A transexual might make the novel claim that it is bad manners to call a male-to-female transexual "he". Someone who disagrees may refuse. Both parties are free to disassociate from the other. (What if they are not free to disassociate, for example colleagues? Whose rule of manners should be followed? The socially normal one, of course, whichever that is.)
What if someone claims it is bad manners not to remember to use her bizarre pronouns (per, em, xyr, vis)? Clearly this is not reasonable disagreement, but an attempt to impose claims about manners as an exercise of power. The sole purpose of the novel claim about manners is to exercise power.
One could publicly campaign to try to make one's novel claim about manners considered the default, correct choice, in a dispute between colleagues mediated by a Human Resources department. This is the politicisation of manners.
One strategy is to enlist the power of the law: to make it illegal not to obey bizarre whims about pronouns. This is the legalisation of manners: to make what was previously the voluntarily negotiated norms of human interaction, a matter for the law.
It is good manners to refer to a male-to-female transexual as "she", even though "she" is not really a woman. Good manners does not require "she" should be allowed to compete in female sporting events.
There is a trend in political correctness aim to replace voluntary manners with power.
A transexual might make the novel claim that it is bad manners to call a male-to-female transexual "he". Someone who disagrees may refuse. Both parties are free to disassociate from the other. (What if they are not free to disassociate, for example colleagues? Whose rule of manners should be followed? The socially normal one, of course, whichever that is.)
What if someone claims it is bad manners not to remember to use her bizarre pronouns (per, em, xyr, vis)? Clearly this is not reasonable disagreement, but an attempt to impose claims about manners as an exercise of power. The sole purpose of the novel claim about manners is to exercise power.
One could publicly campaign to try to make one's novel claim about manners considered the default, correct choice, in a dispute between colleagues mediated by a Human Resources department. This is the politicisation of manners.
One strategy is to enlist the power of the law: to make it illegal not to obey bizarre whims about pronouns. This is the legalisation of manners: to make what was previously the voluntarily negotiated norms of human interaction, a matter for the law.
It is good manners to refer to a male-to-female transexual as "she", even though "she" is not really a woman. Good manners does not require "she" should be allowed to compete in female sporting events.
Friday 26 July 2019
The Gettier Problem, Relativism, and Bayesianism
A naive definition of knowledge is "justified true belief". To have knowledge, you must believe something. That belief must be true otherwise it is not knowledge. And it must be justified. If your beliefs are true by accident, it is not knowledge.
Edmund Gettier came up with a thought-experiment to criticise this definition. You look through a window and you see your friend Bob sitting with his back to you in an arm-chair. You believe "Bob is in the room". But in fact the figure in the armchair is an effigy, not Bob. However, Bob is in the room, hiding behind a curtain. Your belief is justified and true, but it does not appear to be knowledge. It is true by luck. The justification and the truth are not connected.
The probabilistic view sidesteps the Gettier problem. Beliefs are probabilistic. You see the effigy and you increase your subjective probability that Bob is in the room. But you know you could be wrong. You also believe that the figure in the chair is Bob. You could make bets about it. As it happens, you win the former bet but lose the latter bet. Tant pis.
Relativism is the bizarre view that truths are relative to people, that there is no objective reality regarding certain issues. For example, the belief that a Bob is in the room is true for one person but not for another. This view is rarely thought through by the few who hold it, but probabilism sidesteps it, by clarifying that two people can hold different beliefs based on the evidence they have seen and their priors, but beliefs must be testable by objective reality to qualify as beliefs. Under probabilism, it is meaningless to have a belief you cannot bet on - you need some way of deciding the bet!
Edmund Gettier came up with a thought-experiment to criticise this definition. You look through a window and you see your friend Bob sitting with his back to you in an arm-chair. You believe "Bob is in the room". But in fact the figure in the armchair is an effigy, not Bob. However, Bob is in the room, hiding behind a curtain. Your belief is justified and true, but it does not appear to be knowledge. It is true by luck. The justification and the truth are not connected.
The probabilistic view sidesteps the Gettier problem. Beliefs are probabilistic. You see the effigy and you increase your subjective probability that Bob is in the room. But you know you could be wrong. You also believe that the figure in the chair is Bob. You could make bets about it. As it happens, you win the former bet but lose the latter bet. Tant pis.
Relativism is the bizarre view that truths are relative to people, that there is no objective reality regarding certain issues. For example, the belief that a Bob is in the room is true for one person but not for another. This view is rarely thought through by the few who hold it, but probabilism sidesteps it, by clarifying that two people can hold different beliefs based on the evidence they have seen and their priors, but beliefs must be testable by objective reality to qualify as beliefs. Under probabilism, it is meaningless to have a belief you cannot bet on - you need some way of deciding the bet!
Sunday 16 June 2019
Laplace's rule of thumb
Laplace's rule of succession is only a rule of thumb. The idea is that since probabilities cannot be zero or one, if one has seen a hundred white swans and no black swans, one should not assign a probability of 100/100=100%. Instead, one assigns 100/101 = 99.01%. n/n+1, not n/n.
This is more sensible than assigning 100% because it is open to the possibility of error, and makes it possible to change your mind. If your prior probability is zero or one, no amount of evidence can change your mind according to Bayes' theorem.
However, in the real world, events are rarely exclusive. There are many alternatives to a hypothesis. We should not assign equal probability to the alternatives. For example, if you had only seen five white swans, there might exist red, green, blue, orange or black swans. According to a naive version of Laplace's rule, we would expect a random swan to be white with only 50% probability, assigning 10% each to red, green, blue, orange and black.
Clearly, a more sensible prediction for the colour of a random adult swan in Europe is more like 99% white, 1% black and close to zero for red, green, blue and orange, even if you have only seen fifty swans in your lifetime.
This is more sensible than assigning 100% because it is open to the possibility of error, and makes it possible to change your mind. If your prior probability is zero or one, no amount of evidence can change your mind according to Bayes' theorem.
However, in the real world, events are rarely exclusive. There are many alternatives to a hypothesis. We should not assign equal probability to the alternatives. For example, if you had only seen five white swans, there might exist red, green, blue, orange or black swans. According to a naive version of Laplace's rule, we would expect a random swan to be white with only 50% probability, assigning 10% each to red, green, blue, orange and black.
Clearly, a more sensible prediction for the colour of a random adult swan in Europe is more like 99% white, 1% black and close to zero for red, green, blue and orange, even if you have only seen fifty swans in your lifetime.
Popper versus Bayes
Popper thought he could turn inductive science into a deductive process. We only see white swans, so we form a theory that all swans are white, but we might turn out to be wrong. The theory can never be proved. Aha, says Popper, but it can be disproved. If we see a single black swan, that disproves the theory.
The problem is that one can never be sure of evidence. Perhaps the evidence is wrong and the theory is correct. One man's modus ponens is another man's modus tollens. If I receive reports of black swans from Australia, maybe the reports are wrong, for a variety of reasons. Maybe all swans I have ever seen are in disguise. Maybe I am in the Matrix.
Another criticism of Popper's method is that his deductive claims are not very useful. If it is true that "not all swans are white", this does not help me make predictions. Such a statement says nothing about the probability that a given swan is black of white.
David Stove showed that criticisms of inductivism, that it doesn't live up to deductive standards, are misguided. They beg the question by assuming "deductivism", that only deductive arguments are valid. In fact, inductive arguments can be useful, with evidence supporting a conclusion despite not logically entailing it. Perhaps inductivism should be renamed "probabilism", or "Bayesianism".
The correct epistemology is Bayesian: knowledge is probabilistic. A correct epistemology covers everything: science is a subset of it. You don't have different epistemologies for different things. Therefore the practice of science should be probabilistic. What makes science special, then? It involves techniques of "epistemic hygiene" to increase our confidence in our beliefs. By carefully designing experiments, and using good statistics, we can increase the probability of a hypothesis by reducing the probability of alternative hypotheses.
Bayesianism makes one hyper-aware of the infinite number of hypotheses.
The problem is that one can never be sure of evidence. Perhaps the evidence is wrong and the theory is correct. One man's modus ponens is another man's modus tollens. If I receive reports of black swans from Australia, maybe the reports are wrong, for a variety of reasons. Maybe all swans I have ever seen are in disguise. Maybe I am in the Matrix.
Another criticism of Popper's method is that his deductive claims are not very useful. If it is true that "not all swans are white", this does not help me make predictions. Such a statement says nothing about the probability that a given swan is black of white.
David Stove showed that criticisms of inductivism, that it doesn't live up to deductive standards, are misguided. They beg the question by assuming "deductivism", that only deductive arguments are valid. In fact, inductive arguments can be useful, with evidence supporting a conclusion despite not logically entailing it. Perhaps inductivism should be renamed "probabilism", or "Bayesianism".
The correct epistemology is Bayesian: knowledge is probabilistic. A correct epistemology covers everything: science is a subset of it. You don't have different epistemologies for different things. Therefore the practice of science should be probabilistic. What makes science special, then? It involves techniques of "epistemic hygiene" to increase our confidence in our beliefs. By carefully designing experiments, and using good statistics, we can increase the probability of a hypothesis by reducing the probability of alternative hypotheses.
Bayesianism makes one hyper-aware of the infinite number of hypotheses.
Tuesday 28 May 2019
Group selection
I have written about group selection before.
However, researchers like Michael Woodley, Ed Dutton, Bruce Charlton have written about the consequences of group selection and their benefits. For example, Charlton and Dutton in "The Genius Famine" argue that the genius is an example of group selection. Geniuses are anti-social figures whose inventions benefit the group, but not themselves. Geniuses typically do not reproduce.
This is Bayesian evidence for the existence of group selection. Perhaps the logical argument against group selection is flawed.
Tuesday 12 March 2019
Ebooks
Advantages
- Minimal marginal cost
- Minimal financial risk - you can't print too many
- Lightweight. You can carry a thousand books in your pocket for less weight than a paperback
Disadvantages
- Harder for people to peruse your bookshelf, or see what you are reading. Less chance for serendipitous discoveries
Neutral
- Can't lend them to other people, no second-hand market (bad for readers, good for booksellers)
- Piracy much easier (good for readers, bad for booksellers)
- Authors don't need a publisher, can easily self-publish through Amazon. Good for authors, bad for publishers, risk of Amazon establishing a monopoly (bad for authors)
Saturday 9 March 2019
How is the left responding to new genetic discoveries?
We have long had circumstantial evidence that racial differences in intelligence are partly genetic. We know that the races differ in average intelligence, and we know that intra-race differences in intelligence are partly genetic, partly non-shared environment (random effects, measurement error), therefore it is likely that the same applies to inter-race differences.
No one denies that Tibetan adaptations to high altitude are entirely genetic, not cultural, and there are many other race-specific traits which are uncontroversially attributed solely to genetics. But when it comes to intelligence, the obvious inference is not drawn.
Genome-wide association studies are finally identifying specific genes for traits. We can now make accurate predictions about someone's traits from their genome. As individual genes are identified, and these genes are shown to have different frequencies across the races, how will the left react? How is the left reacting?
Denial will continue for a long time. We've had evidence for a long time; why should one more piece of evidence make a difference?
To some extent it doesn't matter. Philosophical obfuscation about the concept of race won't work any more. Ordinary people will be able to see the validity of the science with their own eyes. The leftist obfuscation will be ignored. Ordinary people already want to choose high-IQ, tall, good-looking sperm and egg donors; they understand the truth on an implicit level at least.
Eventually the left will have to adapt its theories to the reality of human genetics. I expect people will realise that "meritocracy" means "genetic advantages", and egalitarianism will attempt to equalise these, either with monetary redistribution, or genetic engineering (state-subsidised embryo selection for the poor, banning embryo selection for the rich, etc).
No one denies that Tibetan adaptations to high altitude are entirely genetic, not cultural, and there are many other race-specific traits which are uncontroversially attributed solely to genetics. But when it comes to intelligence, the obvious inference is not drawn.
Genome-wide association studies are finally identifying specific genes for traits. We can now make accurate predictions about someone's traits from their genome. As individual genes are identified, and these genes are shown to have different frequencies across the races, how will the left react? How is the left reacting?
Denial will continue for a long time. We've had evidence for a long time; why should one more piece of evidence make a difference?
To some extent it doesn't matter. Philosophical obfuscation about the concept of race won't work any more. Ordinary people will be able to see the validity of the science with their own eyes. The leftist obfuscation will be ignored. Ordinary people already want to choose high-IQ, tall, good-looking sperm and egg donors; they understand the truth on an implicit level at least.
Eventually the left will have to adapt its theories to the reality of human genetics. I expect people will realise that "meritocracy" means "genetic advantages", and egalitarianism will attempt to equalise these, either with monetary redistribution, or genetic engineering (state-subsidised embryo selection for the poor, banning embryo selection for the rich, etc).
The Multiplier Effect: wrong in so many ways
The "Multiplier Effect" story goes like this: The state increases spending by £100. The person they pay this to saves 10% and spends the remaining £90. The next person saves 10% of that and spends the rest, and so on. An initial increase in state spending of £100 leads to an increase in GDP of £1000.
This is nonsense.
If it were true, all money would end up "saved" in vaults, and there would be no money circulating. In reality, money continues circulating indefinitely. Money that is saved bids up the price of money, causing other savers to withdraw their savings and spend. For every young person saving, there is an old person spending. There will be an equilibrium where a certain proportion of money is saved at any given time.
An alternative to saving is investment. Money that is spent on investment continues circulating.
The multiplier effect argument applies to all spending, not just government spending. Increases in state spending have to come from somewhere, whether it is taxation, borrowing or money creation. All three decrease purchasing power (i.e. spending) elsewhere.
A clearer way to look at things is to ignore money. An increase in government spending reallocates resources to the government. It does not increase the amount of resources available. It does not actually increase GDP.
So the above "multiplier effect" story is nonsense.
The real multiplier effect concerns productive, profitable investment. If an investment is profitable, it takes resources as input, and outputs a larger amount of resources. The multiplier factor is a measure of how profitable it is. Government spending, like private spending, only has a multiplier effect on GDP if goes into a successful, productive, profitable investment. If it goes into a foolish, loss-making investment project, or into consumption and spending, it has a demultiplier effect.
This is nonsense.
If it were true, all money would end up "saved" in vaults, and there would be no money circulating. In reality, money continues circulating indefinitely. Money that is saved bids up the price of money, causing other savers to withdraw their savings and spend. For every young person saving, there is an old person spending. There will be an equilibrium where a certain proportion of money is saved at any given time.
An alternative to saving is investment. Money that is spent on investment continues circulating.
The multiplier effect argument applies to all spending, not just government spending. Increases in state spending have to come from somewhere, whether it is taxation, borrowing or money creation. All three decrease purchasing power (i.e. spending) elsewhere.
A clearer way to look at things is to ignore money. An increase in government spending reallocates resources to the government. It does not increase the amount of resources available. It does not actually increase GDP.
So the above "multiplier effect" story is nonsense.
The real multiplier effect concerns productive, profitable investment. If an investment is profitable, it takes resources as input, and outputs a larger amount of resources. The multiplier factor is a measure of how profitable it is. Government spending, like private spending, only has a multiplier effect on GDP if goes into a successful, productive, profitable investment. If it goes into a foolish, loss-making investment project, or into consumption and spending, it has a demultiplier effect.
SJW rhetoric and free speech
Much of "social justice warrior" discourse is just rhetoric with the aim of getting the other person to shut up. The content is not the point -- there doesn't necessarily have to be any content -- the point is to shut the other person up.
For example, the idea that men should defer to women on "women's issues" and shouldn't talk about them. Whatever justification is given for this (e.g. "privilege") doesn't matter; the result is "shut up".
An effective defence against this technique is to point it out.
Such people often aren't reasoning with. Anyone who explicitly wants you to shut up certainly isn't. They have shown they are not open to reason.
Your aim with continuing speech (not shutting up) is not to speak to the person trying to shut you up, but to bypass them and speak to everyone else.
People who want to shut you up are not getting rid of you, they are just creating a parallel society which they are not part of. The same goes for people who want to deny you free speech, "no platformers" etc. This is not to deny that they pose a threat, but the response to that threat cannot be to reason with them; it must be to bypass them.
For example, the idea that men should defer to women on "women's issues" and shouldn't talk about them. Whatever justification is given for this (e.g. "privilege") doesn't matter; the result is "shut up".
An effective defence against this technique is to point it out.
Such people often aren't reasoning with. Anyone who explicitly wants you to shut up certainly isn't. They have shown they are not open to reason.
Your aim with continuing speech (not shutting up) is not to speak to the person trying to shut you up, but to bypass them and speak to everyone else.
People who want to shut you up are not getting rid of you, they are just creating a parallel society which they are not part of. The same goes for people who want to deny you free speech, "no platformers" etc. This is not to deny that they pose a threat, but the response to that threat cannot be to reason with them; it must be to bypass them.
Friday 8 March 2019
People and externalities
Immigration is sometimes portrayed as solely a matter for the immigrant and his employer, or his landlord. Why should anyone else have the right to stop the immigrant moving here to get a better job, or to stop the employer hiring the cheapest labour he can find, regardless of nationality? Why should anyone else have a right to stop a landowner selling or renting his property to a foreigner? In a previous post, I explained that when the immigrant has negative externalities, your neighbours do have a legitimate interest.
The libertarian viewpoint under which immigration is solely a matter for immigrant and employer, or immigrant and landlord, only recognises freehold property, and property derived from it (e.g. leasehold). If you want to sell your land to a foreigner, no one else should be able to stop you, or so the argument goes. But this argument assumes its conclusion. Why shouldn't your neighbours be able to regulate what you do with your property? Why shouldn't there be collective property rights, where your neighbours can deny you the ability to sell your property to a foreigner?
Some immigration has nothing to do with business and employment. There are some immigrants who have no intention of working at all: beggars, con-artists, etc.
Of course it is not just immigrants who have externalities. All people do. Immigration control prevents bad people from getting in, but what about the bad people who are already here?
People are negative externalities by default unless they can justify their existence to me. They take up space, cause pollution, and bid up the prices of scarce commodities like prime locations, oil and other commodities. This is called the pecuniary externality.
Some people are positive externalities: they are so productive and do not capture all the benefits of their productivity. Inventors and innovators seldom capture all the wealth they create. Garett Jones' book "Hive Mind" explains how national average IQ matters more than your individual IQ; your having a high IQ benefits your neighbours more than it benefits you.
Beggars and other unproductive people are attracted to cities for the same reason that unproductive people are attracted to nice countries. It is better to be a homeless beggar in Britain than in, say, Libya, particularly if you are a woman. Begging is an ecological niche that doesn't work outside cities; there is not enough footfall.
The same applies to crime. Criminals tend to move to cities because there is more opportunity for crime there. There is more crime and criminals in the cities. Criminals don't tend to travel much, hence "white flight" to the suburbs where it is safer.
The libertarian viewpoint under which immigration is solely a matter for immigrant and employer, or immigrant and landlord, only recognises freehold property, and property derived from it (e.g. leasehold). If you want to sell your land to a foreigner, no one else should be able to stop you, or so the argument goes. But this argument assumes its conclusion. Why shouldn't your neighbours be able to regulate what you do with your property? Why shouldn't there be collective property rights, where your neighbours can deny you the ability to sell your property to a foreigner?
Some immigration has nothing to do with business and employment. There are some immigrants who have no intention of working at all: beggars, con-artists, etc.
Of course it is not just immigrants who have externalities. All people do. Immigration control prevents bad people from getting in, but what about the bad people who are already here?
People are negative externalities by default unless they can justify their existence to me. They take up space, cause pollution, and bid up the prices of scarce commodities like prime locations, oil and other commodities. This is called the pecuniary externality.
Some people are positive externalities: they are so productive and do not capture all the benefits of their productivity. Inventors and innovators seldom capture all the wealth they create. Garett Jones' book "Hive Mind" explains how national average IQ matters more than your individual IQ; your having a high IQ benefits your neighbours more than it benefits you.
Beggars and other unproductive people are attracted to cities for the same reason that unproductive people are attracted to nice countries. It is better to be a homeless beggar in Britain than in, say, Libya, particularly if you are a woman. Begging is an ecological niche that doesn't work outside cities; there is not enough footfall.
The same applies to crime. Criminals tend to move to cities because there is more opportunity for crime there. There is more crime and criminals in the cities. Criminals don't tend to travel much, hence "white flight" to the suburbs where it is safer.
War and cooperation
Kin selection is not a special case of evolution, it is the main case. Genes are types not tokens, and if you can benefit more than two brothers at the expense of yourself, it is the adaptive thing to do.
However, kin selection drops off exponentially: two brothers, four grandparents, eight cousins...
So kin selection does not explain altruism in societies. It is not adaptive to die in war for your society, only for your brothers (grandparents, cousins...). Group selection does not occur, because a selfish person can benefit by not going to war while his neighbours so.
But group selection appears to occur. Societies must cooperate to win wars, and the losing, less cooperative society is often eliminated entirely. (Melanesian men conquered Vanuatu and Tonga, killed all the previous male inhabitants and took their women.)
So what is going on? The answer is that the only feature which is selected by group selection is cooperation. Cooperation is not altruism, it is done selfishly to benefit you and your kin. That it benefits the other party is incidental. Ability to cooperate is a property of individuals, not groups, though it only makes sense in a group setting (you need other people to cooperate with).
You die in war to benefit your kin. You devise social enforcement mechanisms to ensure your neighbours contribute to the war effort.
You need a minimum number of cooperators in your society to win wars. Societies which are better at cooperation will outcompete societies which are not. Asabiyyah matters. In-fighting at the expense of out-fighting will bring down a society. Clearly, if a cooperative society exterminates a non-cooperative society and takes its land, genes for cooperation will spread.
Group selection cannot occur if it conflicts with individual/kin selection. Group selection does not occur often enough to build features such as cooperation, it only increases their number/propagates them.
Why is cooperation the only feature selected by group selection? Because the group is the unit of cooperation. That's what a group is.
However, kin selection drops off exponentially: two brothers, four grandparents, eight cousins...
So kin selection does not explain altruism in societies. It is not adaptive to die in war for your society, only for your brothers (grandparents, cousins...). Group selection does not occur, because a selfish person can benefit by not going to war while his neighbours so.
But group selection appears to occur. Societies must cooperate to win wars, and the losing, less cooperative society is often eliminated entirely. (Melanesian men conquered Vanuatu and Tonga, killed all the previous male inhabitants and took their women.)
So what is going on? The answer is that the only feature which is selected by group selection is cooperation. Cooperation is not altruism, it is done selfishly to benefit you and your kin. That it benefits the other party is incidental. Ability to cooperate is a property of individuals, not groups, though it only makes sense in a group setting (you need other people to cooperate with).
You die in war to benefit your kin. You devise social enforcement mechanisms to ensure your neighbours contribute to the war effort.
You need a minimum number of cooperators in your society to win wars. Societies which are better at cooperation will outcompete societies which are not. Asabiyyah matters. In-fighting at the expense of out-fighting will bring down a society. Clearly, if a cooperative society exterminates a non-cooperative society and takes its land, genes for cooperation will spread.
Group selection cannot occur if it conflicts with individual/kin selection. Group selection does not occur often enough to build features such as cooperation, it only increases their number/propagates them.
Why is cooperation the only feature selected by group selection? Because the group is the unit of cooperation. That's what a group is.
Rent belongs to no one
Natural rents cannot be eliminated; they must always accrue to someone. From the point of view of economics, it does not matter who.
If they accrue to an owner-occupier, he can spend them on himself. If they accrue to a landlord, he can spend them on himself!
If they accrue to the state, it can spend them on what it likes. Once essential expenditures are taken care of (costs necessary to preserve the income stream: security, infrastructure, parks...), there will be a large surplus. In an ideal society, much of this would be spent on beautifying the area. Pavements would be made out of brick, maintained in perfect condition, washed daily; bins would be polished and emptied regularly; there would be no litter; gardens and planting would be immaculate; buildings would be given new façades.
It doesn't all have to be spent on space travel and welfare.
If they accrue to an owner-occupier, he can spend them on himself. If they accrue to a landlord, he can spend them on himself!
If they accrue to the state, it can spend them on what it likes. Once essential expenditures are taken care of (costs necessary to preserve the income stream: security, infrastructure, parks...), there will be a large surplus. In an ideal society, much of this would be spent on beautifying the area. Pavements would be made out of brick, maintained in perfect condition, washed daily; bins would be polished and emptied regularly; there would be no litter; gardens and planting would be immaculate; buildings would be given new façades.
It doesn't all have to be spent on space travel and welfare.
States and mutational load
"There is a great deal of ruin in a nation", said Adam Smith. He meant that a great deal of problems can accumulate without bringing down a great nation. This is a bit like genetic load (mutational load), where mutations accumulate in a population or dynasty, having a deleterious but not catastropic effect. Mutations are purged by sexual reproduction and selection, but a base level remains, and accumulates if selection is not strong enough. Eventually it does have a catastrophic effect.
The state can be an anti-evolutionary, entropic device. Its policies can cause a great deal of problems, none of which are individually catastrophic. It can devote a vast amount of energy to sustaining things which cannot sustain themselves. The state acts as life support for anti-evolutionary, unsustainable processes. Problems accumulate, but instead of self-correcting they are kept around by vast injections of free energy in the form of taxpayer cash. The state takes energy from the productive, self-sustaining elements of society, and transfers it to un-self-sustaining, parasitic elements of society. The state is the mechanism by which one part of society parasitises another. In a sense it creates the parasites.
In theory this could continue indefinitely, but in practice the parasitic part increases until the productive part can no longer sustain it. Collapse may occur. If collapse does occur, it will be greater than it would have been without state support. The state delays the collapse and makes it worse when it does happen.
The state is part of the process by which mutational load in the population is increased.
The state can be an anti-evolutionary, entropic device. Its policies can cause a great deal of problems, none of which are individually catastrophic. It can devote a vast amount of energy to sustaining things which cannot sustain themselves. The state acts as life support for anti-evolutionary, unsustainable processes. Problems accumulate, but instead of self-correcting they are kept around by vast injections of free energy in the form of taxpayer cash. The state takes energy from the productive, self-sustaining elements of society, and transfers it to un-self-sustaining, parasitic elements of society. The state is the mechanism by which one part of society parasitises another. In a sense it creates the parasites.
In theory this could continue indefinitely, but in practice the parasitic part increases until the productive part can no longer sustain it. Collapse may occur. If collapse does occur, it will be greater than it would have been without state support. The state delays the collapse and makes it worse when it does happen.
The state is part of the process by which mutational load in the population is increased.
Probabilistic economics
Supply and particularly demand curves are probabilistic. A demand curve shows the amount that would likely be demanded for a given price, over a certain time period. Each point on the curve is actually a probability distribution.
If a market is particularly "liquid", the variance of the probability distributions will be low. For a given price, I can predict the number of goods sold per week with high accuracy. But in an illiquid market, I may have to wait a long time to achieve a good price. Or I might get lucky and find a buyer quickly, at a good price.
Economics needs more probabilistic thinking. Austrian Economics' deductivism fails because it is not probabilistic. Austrians say "a minimum wage fixes the price of labour artificially high, therefore, all other things being equal, it will reduce demand for labour and increase supply, causing unemployment". However, this is not certain. In the multiverse, there are many worlds where, even when all other things do remain equal, minimum wages do not cause unemployment. They might be a minority of worlds, but they exist. The probability is low but not zero.
If a market is particularly "liquid", the variance of the probability distributions will be low. For a given price, I can predict the number of goods sold per week with high accuracy. But in an illiquid market, I may have to wait a long time to achieve a good price. Or I might get lucky and find a buyer quickly, at a good price.
Economics needs more probabilistic thinking. Austrian Economics' deductivism fails because it is not probabilistic. Austrians say "a minimum wage fixes the price of labour artificially high, therefore, all other things being equal, it will reduce demand for labour and increase supply, causing unemployment". However, this is not certain. In the multiverse, there are many worlds where, even when all other things do remain equal, minimum wages do not cause unemployment. They might be a minority of worlds, but they exist. The probability is low but not zero.
Political thought and action
Ideas are only useful if they imply actions. This includes "big ideas" and grand abstractions.
Corollary: political ideas and opinions are only worthwhile if they imply policies. If you can't use them to generate a policy, you are not thinking clearly. This includes political "big ideas" and grand abstractions. They must at least be able to imply actions, even if you are trying to abstract across various historical societies.
Ideas should be machines for generating actions, otherwise they are pointless.
Corollary: political ideas and opinions are only worthwhile if they imply policies. If you can't use them to generate a policy, you are not thinking clearly. This includes political "big ideas" and grand abstractions. They must at least be able to imply actions, even if you are trying to abstract across various historical societies.
Ideas should be machines for generating actions, otherwise they are pointless.
The Prisoner's Dilemma
The Prisoner's Dilemma has the following payoff matrix:
| Defect | Cooperate | |
| Defect | 0\0 | 2\-1 |
| Cooperate | -1\2 | 1\1 |
Whatever move the opponent makes, you are better off defecting. However, if both players cooperate, they are both better off than if both players defect. The bonus from defecting when the other player cooperates is not so high that you could compensate them: the total payoff when both players cooperate is higher than the total payoff when one cooperates and the other defects.
The highest scoring result for you occurs when you always defect and your opponent always cooperates. However this only happens in real life against exceptionally unsophisticated opponents, such as CooperateBot (who always cooperates). In real-life prisoner's dilemma tournaments, DefectBot (who always defects) performs worse than ChanceBot (cooperate with 50% probability).
If you playing against a sophisticated opponent, the best outcome you can hope for is a string of consecutive cooperations. Defections will be punished in subsequent rounds, reducing both player's scores.
You should always defect on the last round (assuming the number of rounds is not random) because you cannot be punished for it. However, if you know your opponent is going to defect on the last round, then you should defect on the round before that, and so on. Some of the most successful algorithms always defect on the last two or even three rounds. This is clearly sub-optimal: if only there were a way for both players to cooperate on the last round...
The classic prisoner's dilemma algorithm is "tit for tat", where you cooperate on the first move, then subsequently just replicate your opponent's last move. The problem with pure tit-for-tat is that it is possible to get stuck in a string of defections, which is bad for both parties. Therefore, tit-for-tat algorithms often have occasional forgiveness built in, where you cooperate twice in a row. It doesn't have to be at random, because your opponent cannot take advantage of it by continuing to defect -- they are better off getting back into a virtuous circle of cooperation. ("Tit for two tats", where you only punish two defections in a row, is too forgiving, and not successful. It allows your opponent to defect every other move with no penalty.)
Tit-for-tat is the foundation of many successful prisoner's dilemma strategies, because you must have some way of punishing defection, otherwise you get taken advantage of. It is not the only way to punish defection. Alternatively you can defect against someone who has defected too many times total in the past, or too many times as a percentage. The percentage strategy is better in a long tournament, because it allows more cooperation.
It may seem that a good algorithm should have some way of taking advantage of unwise cooperation. An unwise cooperator is someone who too often responds to defection with cooperation. The idea is to defect early to see how the opponent reacts. Algorithms that do not identify unwise cooperators and take advantage of them are leaving money on the table.
In practice, however, this is not a good idea. One rarely encounters unwise cooperators in real life, because other algorithms will take advantage of them and eliminate them. The problem is that by probing with defections to try to identify unwise cooperators, you risk getting stuck in a cycle of mutual defection. One should not be the one to start this, therefore one should not probe. But you must be ready to defend yourself against probers. Probers will outcompete unwise cooperators, but those who do not probe will outcompete probers.
If you have the ability to simulate your opponent, this allows you to beat CooperateBot without the costs of probing. If you can simulate your opponent, the algorithm becomes "Simulate my opponent to find out whether defections by me will be punished. If so, cooperate. If not, defect." The probing gets carried out in the simulation, where it is costless (or relatively costless).
But against minimally sophisticated opponents, being able to simulate them doesn't gain you anything. Simple tit-for-tat is effective against someone who can simulate you; so you don't need to simulate them.
The inputs to simulation are the opponent's source-code, and the history of the game so far (or the number of rounds played so far, so you can recreate the history).
Where simulation is really helpful is in the final round, or in the one-round prisoner's dilemma. In the one-round prisoner's dilemma, the final round is also the first and only round. You can't just automatically cooperate in the final round, because your opponent will simulate you and defect.
In the last round, you want to do whatever your opponent does. Ideally you would both cooperate rather than both defect. You want to say to your opponent "I will cooperate if you will." Simulation is effectively a form of communication. So you simulate your opponent, and do what he does.
If both players try to simulate each other, we need a way of terminating the infinite regression. Yudkowsky said "Simulate my opponent, and if it tries to simulate me, have its simulation of me output Cooperate, then do what it would do." This will achieve cooperation in the final round.
If you can achieve superrational cooperation with your opponent, you can do this in every round. Each round becomes independent and you always cooperate. The history becomes irrelevant.
"Cooperate" in Yudkowsky's algorithm is only the base case, to prevent infinite regression. The main strategy of Yudkowsky's algorithm is to do what the other player would do. It will cooperate against itself. (Only one of the players needs to have the terminating base case.)
"Cooperate" in Yudkowsky's algorithm is only the base case, to prevent infinite regression. The main strategy of Yudkowsky's algorithm is to do what the other player would do. It will cooperate against itself. (Only one of the players needs to have the terminating base case.)
In Hammond and Axelrod (2006), "The Evolution of Ethnocentrism", they play a one-shot prisoner's dilemma, where agents of the same "color" make successful use of the strategy "cooperate with agents of the same color, defect against agents of different colors". DefectBots are suppressed by agents of different colors. This only applies to the one-shot game. In the iterated prisoner's dilemma, "ethnocentric" strategies would be dominated by the more sophisticated algorithms described above. There are benefits to cooperation with strangers as well as family, and "family" will not be so similar that they are guaranteed not to defect.
The franchise expansion ratchet
Expansion of the franchise seems to be a law of history. There will always be a faction within the ruling class which can benefit in the short run from expanding the franchise, though it doesn't usually benefit them in the long run.
Expansion of the franchise is a ratchet. Once you give people the vote, they will not vote for a candidate who proposes to take it away from them. Like the immigration ratchet, if you propose to take the vote away from 25% of the electorate, you need a 2/3 majority of the remainder of the electorate in order to have an overall majority.
Could there be a situation where a majority of the electorate unites to disenfranchise a minority?
Certainly. If the electorate is divided racially, a majority race can unite to disenfranchise the minority. Often, the minority does not lose the vote, but has various sanctions imposed. In South Africa, there are quotas against whites in business and academia.
In business, there are laws to prevent majority shareholders disenfranchising minority shareholders. Dividends must be paid equally. Majority shareholders sometimes attempt to get around this by employing themselves at a high salary or awarding contracts to themselves, diverting profits into wages and "consulting fees".
Redistributive taxation is the poor majority uniting to financially disenfranchise the rich minority. You can't have negative inequality, therefore unless there is perfect equality, there can always be a coalition of the poorest 51% for taking the wealth of the rich. A coalition of the richest 51% is less likely, because the people in the middle get a higher payoff taking money from the rich than they do taking money from the poor.
Redistributed money will not be split equally between the poor; it will be split so the poor are equal. Otherwise it creates incentives for redistribution in the other direction. Consider a population of three people, A, B and C, with wealth as follows: A 1, B 3, C 4.
If A and B unite to take C's money and split it 2 each, the new distribution will be A 3, B 5, C 0. Now A and C have an incentive to unite to take B's wealth.
Instead, A and B take C's money and split it so they are equal. The new distribution is A 4, B 4, C 0. This is stable. Therefore it is possible to maintain inequality in a democracy as long as the upper class is equal and a majority. This is unlikely.
Expansion of the franchise is a ratchet. Once you give people the vote, they will not vote for a candidate who proposes to take it away from them. Like the immigration ratchet, if you propose to take the vote away from 25% of the electorate, you need a 2/3 majority of the remainder of the electorate in order to have an overall majority.
Could there be a situation where a majority of the electorate unites to disenfranchise a minority?
Certainly. If the electorate is divided racially, a majority race can unite to disenfranchise the minority. Often, the minority does not lose the vote, but has various sanctions imposed. In South Africa, there are quotas against whites in business and academia.
In business, there are laws to prevent majority shareholders disenfranchising minority shareholders. Dividends must be paid equally. Majority shareholders sometimes attempt to get around this by employing themselves at a high salary or awarding contracts to themselves, diverting profits into wages and "consulting fees".
Redistributive taxation is the poor majority uniting to financially disenfranchise the rich minority. You can't have negative inequality, therefore unless there is perfect equality, there can always be a coalition of the poorest 51% for taking the wealth of the rich. A coalition of the richest 51% is less likely, because the people in the middle get a higher payoff taking money from the rich than they do taking money from the poor.
Redistributed money will not be split equally between the poor; it will be split so the poor are equal. Otherwise it creates incentives for redistribution in the other direction. Consider a population of three people, A, B and C, with wealth as follows: A 1, B 3, C 4.
If A and B unite to take C's money and split it 2 each, the new distribution will be A 3, B 5, C 0. Now A and C have an incentive to unite to take B's wealth.
Instead, A and B take C's money and split it so they are equal. The new distribution is A 4, B 4, C 0. This is stable. Therefore it is possible to maintain inequality in a democracy as long as the upper class is equal and a majority. This is unlikely.
Saturday 2 March 2019
Brave New World
Huxley imagined a Brave New World where stupid people were deliberately bred as workers: "Epsilons", people without ambition, not bored by drudgery. This would be an error of policy.
If the populations could be reproductively isolated, then the Epsilons could be treated as robots. But in real life, they could not be kept reproductively separate, and their bad genes would infect the upper classes. The only solution in reality is to breed everyone to have a high IQ.
What sort of society would this be, where even menial workers were highly intelligent? It would be a more equal one, because workers doing menial jobs would be capable of doing difficult ones. So difficult jobs would be paid less than they are now, and menial jobs more.
Would clever workers get bored doing menial jobs? Wages would take care of this to a certain extent. They would be able to demand higher wages to pay for the boredom, though not as high as the difficult jobs, assuming difficulty is more off-putting than boredom. If this assumption is false (conceivable but unlikely), the boring jobs could even be paid more than the difficult ones!
Clever people would have greater incentives and ability to devise machinery to make menial jobs easier, because they would be doing those jobs themselves. They could listen to audiobooks or lectures while working. Clever people attracted to "working with their hands" would be able to do so without taking a large paycut.
If the populations could be reproductively isolated, then the Epsilons could be treated as robots. But in real life, they could not be kept reproductively separate, and their bad genes would infect the upper classes. The only solution in reality is to breed everyone to have a high IQ.
What sort of society would this be, where even menial workers were highly intelligent? It would be a more equal one, because workers doing menial jobs would be capable of doing difficult ones. So difficult jobs would be paid less than they are now, and menial jobs more.
Would clever workers get bored doing menial jobs? Wages would take care of this to a certain extent. They would be able to demand higher wages to pay for the boredom, though not as high as the difficult jobs, assuming difficulty is more off-putting than boredom. If this assumption is false (conceivable but unlikely), the boring jobs could even be paid more than the difficult ones!
Clever people would have greater incentives and ability to devise machinery to make menial jobs easier, because they would be doing those jobs themselves. They could listen to audiobooks or lectures while working. Clever people attracted to "working with their hands" would be able to do so without taking a large paycut.
Eugenics
Eugenics is good, you can tell from the name. The only thing worse than eugenics is dysgenics. All societies select for something; the only question is what. You can have a eugenic society or a dysgenic society; there is no middle ground. You have to choose.
The most effective government intervention is eugenic policies to raise the average IQ. IQ is the "God metric", not GDP. IQ is correlated with almost everything good.
It is impossible and unnecessary to predict the exact consequences of increasing IQ. Starting from our present condition, the consequences of small increases would only be good. Society is an emergent property of the people that comprise it, more complicated and dynamic than the ants nest which is at some level specified in the ant genome.
The societies that emerge from high IQ populations are better than those of a low IQ populations, as we can see by looking around the world. Give the United Kingdom a higher average IQ and it will become even better.
Increasing IQ is easier than trying to figure out how to improve the education system or the NHS. Give people higher IQs and they will do it themselves. (They will also be cleverer and healthier already!)
Economies are not self-regulating
Economies are not self-regulating.
Clearly they are self-regulating on a micro level. Demand for shoes increases, pushing up prices, making shoe manufacturers more profitable; this attracts entrepreneurs to the shoe sector, who manufacture more shoes, pushing prices and profitability back down; equilibrium is restored.
Similarly, if the lion population increases, they kill more antelope; the antelope population declines, and is no longer able to sustain so many lions; the lion population decreases, the antelope population recovers, and equilibrium is restored.
Hayek wrote about how the market is a machine for processing information (about what is demanded and how to produce it most cheaply.) We are lucky that it works! Perhaps there are universes where it does not.
It is no accident that Hayek's theory of business cycles emphasised the role of state intervention in causing them, and that he advocated non-interventionism as a way of solving them. Briefly, Hayek theorized that state intervention to lower the market interest rate led to malinvestments and an apparent increase in GDP, but a fall in GDP when interest rates rose and those investments were no longer profitable.
I don't quite agree with this theory. If the state can keep interest rates permanently low, Hayek's prediction will not come true. The economy will be permanently distorted away from consumption and towards investment, but this is not necessarily a bad thing.
The theory I agree with is Moldbug's, who instead of the "business cycle", calls it the "banking cycle", and blames it on maturity transformation. A credit bubble lowers interest rates, which rise when the bubble pops. (Maturity transformation is probably impossible to eliminate.)
We can ignore Keynes and his acolytes: IS/LM, the multiplier effect and all their other bullshit. It is clear that their solutions -- lowering interest rates, printing money, government borrowing and spending -- do not work.
However, all this is irrelevant when looking at the bigger picture. The lion/antelope ratio is not necessarily stable. It might oscillate around an average. Those oscillations might increase or decrease from time to time; they are not necessarily damped. One year the lion population grows too big and the antelope go extinct. Our economists do not know of any interventions to prevent species going extinct.
Similarly, civilisations go through dark ages. Civilisations collapse completely. These declines are indistinguishable from very large recessions. We do not know what causes them, and we do not know how to stop them. The banking cycle may be a cause of recessions, but it is not the only cause.
Clearly they are self-regulating on a micro level. Demand for shoes increases, pushing up prices, making shoe manufacturers more profitable; this attracts entrepreneurs to the shoe sector, who manufacture more shoes, pushing prices and profitability back down; equilibrium is restored.
Similarly, if the lion population increases, they kill more antelope; the antelope population declines, and is no longer able to sustain so many lions; the lion population decreases, the antelope population recovers, and equilibrium is restored.
Hayek wrote about how the market is a machine for processing information (about what is demanded and how to produce it most cheaply.) We are lucky that it works! Perhaps there are universes where it does not.
It is no accident that Hayek's theory of business cycles emphasised the role of state intervention in causing them, and that he advocated non-interventionism as a way of solving them. Briefly, Hayek theorized that state intervention to lower the market interest rate led to malinvestments and an apparent increase in GDP, but a fall in GDP when interest rates rose and those investments were no longer profitable.
I don't quite agree with this theory. If the state can keep interest rates permanently low, Hayek's prediction will not come true. The economy will be permanently distorted away from consumption and towards investment, but this is not necessarily a bad thing.
The theory I agree with is Moldbug's, who instead of the "business cycle", calls it the "banking cycle", and blames it on maturity transformation. A credit bubble lowers interest rates, which rise when the bubble pops. (Maturity transformation is probably impossible to eliminate.)
We can ignore Keynes and his acolytes: IS/LM, the multiplier effect and all their other bullshit. It is clear that their solutions -- lowering interest rates, printing money, government borrowing and spending -- do not work.
However, all this is irrelevant when looking at the bigger picture. The lion/antelope ratio is not necessarily stable. It might oscillate around an average. Those oscillations might increase or decrease from time to time; they are not necessarily damped. One year the lion population grows too big and the antelope go extinct. Our economists do not know of any interventions to prevent species going extinct.
Similarly, civilisations go through dark ages. Civilisations collapse completely. These declines are indistinguishable from very large recessions. We do not know what causes them, and we do not know how to stop them. The banking cycle may be a cause of recessions, but it is not the only cause.
Inequality
There is nothing wrong with inequality. Most arguments against it fail, indeed most arguments against it are not in fact against inequality, they are against poverty.
Inequality drives economic growth by incentivising invention and innovation. It incentivises production at the current level of technology. Incentives matter. High earners will not work as hard if you tax them. A tax system which enforced perfect equality would mean there would be no point taking more difficult jobs at all, let alone doing them full-time.
Entrepreneurs are motivated by becoming rich, and both inequality and economic growth are inevitable consequences of this. The poor are quite obviously better off today than they would have been if perfect inequality had been enforced for hundreds of years.
What are the good arguments against inequality? That it makes people feel bad, and that it causes crime.
People are hierarchical animals, and they feel bad at the bottom of the social status hierarchy. There are genuine negative health effects of being at the bottom of a status hierarchy (though these do not show up epidemiologically, contrary to some claims). Nowadays, the whole society feels like one big status hierarchy.
If you're at the bottom of a society, you probably don't have a realistic expectation of bettering your lot in life. Crime becomes attractive.
However, these are not good enough reasons to enforce equality. 100% tax rates remain a bad idea. A flourishing civilisation is more important than some people's suffering.
What can we do, then? Separation. People compare themselves to their neighbours. International inequality does not have the downsides listed above, particularly regarding crime. Separation also makes crime impossible.
Inequality drives economic growth by incentivising invention and innovation. It incentivises production at the current level of technology. Incentives matter. High earners will not work as hard if you tax them. A tax system which enforced perfect equality would mean there would be no point taking more difficult jobs at all, let alone doing them full-time.
Entrepreneurs are motivated by becoming rich, and both inequality and economic growth are inevitable consequences of this. The poor are quite obviously better off today than they would have been if perfect inequality had been enforced for hundreds of years.
What are the good arguments against inequality? That it makes people feel bad, and that it causes crime.
People are hierarchical animals, and they feel bad at the bottom of the social status hierarchy. There are genuine negative health effects of being at the bottom of a status hierarchy (though these do not show up epidemiologically, contrary to some claims). Nowadays, the whole society feels like one big status hierarchy.
If you're at the bottom of a society, you probably don't have a realistic expectation of bettering your lot in life. Crime becomes attractive.
However, these are not good enough reasons to enforce equality. 100% tax rates remain a bad idea. A flourishing civilisation is more important than some people's suffering.
What can we do, then? Separation. People compare themselves to their neighbours. International inequality does not have the downsides listed above, particularly regarding crime. Separation also makes crime impossible.
My lifestyle relies on inequality
My lifestyle relies on inequality. It took me a while to realise this; libertarians particularly are resistant to admitting it. It took me a while to realise it because leftist arguments against inequality are so poor. But just because inequality is not a bad thing, that doesn't mean it doesn't exist and benefit me.
My income is several times the national average. This means that my lifestyle relies on several people effectively working solely for me. Some are in this country, some are abroad on much lower wages. It would be theoretically possible for me to have a high income without relying on other people, if I relied solely on capital -- imagine someone on a desert island, waited on by robots. But in the real world, my income is driven partly by labour; the labour of other people.
It may well be the case that these poor have higher incomes than they would if I didn't exist -- if I am directing production better than they could -- but that is not the point. It may well be the case that inequality is an engine of economic growth that will one day raise the incomes of these poor above even my income today. But the fact remains, that given the current level of technology, I am consuming a greater share.
I am not bemoaning this! But it is important to be clear.
My income is several times the national average. This means that my lifestyle relies on several people effectively working solely for me. Some are in this country, some are abroad on much lower wages. It would be theoretically possible for me to have a high income without relying on other people, if I relied solely on capital -- imagine someone on a desert island, waited on by robots. But in the real world, my income is driven partly by labour; the labour of other people.
It may well be the case that these poor have higher incomes than they would if I didn't exist -- if I am directing production better than they could -- but that is not the point. It may well be the case that inequality is an engine of economic growth that will one day raise the incomes of these poor above even my income today. But the fact remains, that given the current level of technology, I am consuming a greater share.
I am not bemoaning this! But it is important to be clear.
Racial Stockholm syndrome
Letting large numbers of foreigners into your country appears to be a ratchet. It is much easier to let them in, than it is to get them out again. They want to come, but they don't want to leave, so force will be necessary. It is so expensive to deport someone -- thousands of pounds per person -- that the natives will not or cannot pay. People are polite, and will not want to say to someone's face "our country was and would be better without you". It is harder to say "we don't want Bangladeshis in Britain" if you are saying it to a Bangladeshi. It is effectively criticism of that person. No one wants to be (correctly) accused of racism.
Immigration begets more immigration. Once inside the country, those immigrants become a power centre. Politicians must take their views into account, or be beaten by other politicians who do. If only two-thirds of the population is white, as in the United States, a politician who intends to deport the non-white third cannot count on any of its support. He must win three-quarters of the white vote, which is virtually impossible.
But it is more than this. People are exhibiting racial Stockholm syndrome. They are positively extolling the virtues of having Bangladeshis and Somalis in their country. They talk about abstract benefits, and ignore the concrete disadvantages. Crime and IQ statistics are ignored. People say "diversity is strength" when it clearly isn't. An entire ideology has sprung up to justify the presence of foreigners: multiculturalism.
Multiculturalism is best understood as a piece of rhetoric. It is not intended to be a substantial or coherent idea. No one is in favour of a monoculture, of everyone being the same. But the country was not a monoculture before mass immigration. We already have a variety of cultures across the globe: that is what different countries are for. There is no need to bring them here.
Culture is a red herring: cultures are not monoliths. Culture is a vague term: you could not count the number of cultures in the UK. It is possible to be in favour of some parts of a cultures and not others. It is possible to be in favour of some practices and not others. Opposition to mass immigration is not just about cultures and practices, it is about IQ and crime, and the problems and degradation caused by mass immigration.
Immigration begets more immigration. Once inside the country, those immigrants become a power centre. Politicians must take their views into account, or be beaten by other politicians who do. If only two-thirds of the population is white, as in the United States, a politician who intends to deport the non-white third cannot count on any of its support. He must win three-quarters of the white vote, which is virtually impossible.
But it is more than this. People are exhibiting racial Stockholm syndrome. They are positively extolling the virtues of having Bangladeshis and Somalis in their country. They talk about abstract benefits, and ignore the concrete disadvantages. Crime and IQ statistics are ignored. People say "diversity is strength" when it clearly isn't. An entire ideology has sprung up to justify the presence of foreigners: multiculturalism.
Multiculturalism is best understood as a piece of rhetoric. It is not intended to be a substantial or coherent idea. No one is in favour of a monoculture, of everyone being the same. But the country was not a monoculture before mass immigration. We already have a variety of cultures across the globe: that is what different countries are for. There is no need to bring them here.
Culture is a red herring: cultures are not monoliths. Culture is a vague term: you could not count the number of cultures in the UK. It is possible to be in favour of some parts of a cultures and not others. It is possible to be in favour of some practices and not others. Opposition to mass immigration is not just about cultures and practices, it is about IQ and crime, and the problems and degradation caused by mass immigration.
Entrepreneurialism and genetics
Naive libertarians sometimes argue that all that is needed for entrepreneurialism to flourish is for the state to get out of the way. The "market" (that is, entrepreneurs) will always provide everything that is demanded.
Examples of state-led development, such as in early Soviet Russia, or Singapore under Harry Lee, or South Korea under Park Chung-hee, are dismissed by libertarians. "They would have developed even faster without direct state involvement."
I don't think this is true. However, it does touch on an important truth.
There is a deep connection between capitalism and evolution. "Capitalism is what people do when the state gets out of the way." There are many cases where this is true. In Communist countries, the state actively prevents entrepreneurship. Under capitalism, capital flows inevitably to those who can best use it. Natural selection kills businesses which are making worse use of capital, in a discovery process that makes what consumers want.
But this is not always true. I would say, "capitalism is what some people do when the state gets out of the way." Entrepreneurs do not take every profitable opportunity, because there are not enough entrepreneurs. Being an entrepreneur is a disposition, and behavioural traits are genetic. Plenty of people are not entrepreneurs by nature. Some countries have fewer entrepreneurs than others, and some countries have none.
The error here is the libertarian error of humanism: of treating humans as special and qualitatively different from other animals. Mises made this error explicity in "Human Action" (and not just in the title!). It is more accurate to view humans as on a spectrum of animal intelligence. We are just unusually intelligent animals, and some humans are more intelligent than others. Some animals are more intellligent than some humans! Not all humans are the same, and some are more entrepreneurial than others. (There is a correlation between intelligence and entrepreneurialism.) Some races lack entrepreneurialism entirely, and just repeat the behaviour patterns of their ancestors in an unchanging society. Some societies change much more slowly than others. Yanomami tribesmen would not become superb entrepreneurs if you dumped them in California or London. Entrepreneurialism, capitalism is a behaviour pattern, a genetic disposition. Ants do not have it. Not all humans have it.
Speaking generally, we can say that when the state gets out of the way, people act according to their nature. But their nature is not necessarily capitalist.
That is why development in Singapore, South Korea and early Soviet Russia may have been helped by government intervention. It is not implausible. In a society lacking in entrepreneurs, if the few entrepreneurs control the state, they can use their power and intellect to direct large sums of capital.
Examples of state-led development, such as in early Soviet Russia, or Singapore under Harry Lee, or South Korea under Park Chung-hee, are dismissed by libertarians. "They would have developed even faster without direct state involvement."
I don't think this is true. However, it does touch on an important truth.
There is a deep connection between capitalism and evolution. "Capitalism is what people do when the state gets out of the way." There are many cases where this is true. In Communist countries, the state actively prevents entrepreneurship. Under capitalism, capital flows inevitably to those who can best use it. Natural selection kills businesses which are making worse use of capital, in a discovery process that makes what consumers want.
But this is not always true. I would say, "capitalism is what some people do when the state gets out of the way." Entrepreneurs do not take every profitable opportunity, because there are not enough entrepreneurs. Being an entrepreneur is a disposition, and behavioural traits are genetic. Plenty of people are not entrepreneurs by nature. Some countries have fewer entrepreneurs than others, and some countries have none.
The error here is the libertarian error of humanism: of treating humans as special and qualitatively different from other animals. Mises made this error explicity in "Human Action" (and not just in the title!). It is more accurate to view humans as on a spectrum of animal intelligence. We are just unusually intelligent animals, and some humans are more intelligent than others. Some animals are more intellligent than some humans! Not all humans are the same, and some are more entrepreneurial than others. (There is a correlation between intelligence and entrepreneurialism.) Some races lack entrepreneurialism entirely, and just repeat the behaviour patterns of their ancestors in an unchanging society. Some societies change much more slowly than others. Yanomami tribesmen would not become superb entrepreneurs if you dumped them in California or London. Entrepreneurialism, capitalism is a behaviour pattern, a genetic disposition. Ants do not have it. Not all humans have it.
Speaking generally, we can say that when the state gets out of the way, people act according to their nature. But their nature is not necessarily capitalist.
That is why development in Singapore, South Korea and early Soviet Russia may have been helped by government intervention. It is not implausible. In a society lacking in entrepreneurs, if the few entrepreneurs control the state, they can use their power and intellect to direct large sums of capital.
Racism and epistemology
If you are not a racist, there is something seriously wrong with your epistemology. I do not mean racial bigotry: it is important to distinguish between factual ("scientific") racism, and racial bigotry. ("Scientific racism" is genuine science.) It is possible to be a scientific racist but not a racial bigot, and vice versa.
We can also distinguish between racist thoughts and racist actions. This gives us four categories:
We can also distinguish between racist thoughts and racist actions. This gives us four categories:
- Racist factual beliefs: for example, about racial differences in morphology.
- Racist bigoted opinions: dislike of other races.
- Racist actions motivated by facts: making sure donor and recipient for an organ transplant are from the same race; not bothering to test white people for sickle cell anaemia.
- Racist actions motivated by bigotry: violence towards other races.
Clearly, "discrimination", treating people differently, is not bigotry if it has a reasonable basis.
Racist thoughts with a factual basis include all the statistical differences between the races. If you believe in racial differences, you are a racist. If you do not, you are wrong. Therefore, if you are not a racist, there is something seriously wrong with your epistemology.
Belief in racial differences is an inevitable consequence of belief in human differences. Belief in human differences is an inevitable consequence of belief in human evolution. This is why people who do not believe in human genetic differences are called "liberal creationists".
Humans are different from one another, mainly because of genes. It would be exceedingly unlikely for there to be no statistical differences between the races, and in fact there are such differences, because the races have been sufficiently genetically isolated, and subject to different selection pressures. Hence we see genetic resistance to malaria in Africa; adaptations to altitude in Tibet; and short people in the jungle. For the races to have remained the same would have been most improbable, and it did not happen.
"Race" is a mental tool
If you don't believe in race, there is something seriously wrong with your epistemology.
When people say "race isn't real", they prove too much. This argument is strictly correct, but it applies to all concepts. Concepts aren't "real", they are useful, they are mental tools. "Chairs" are no more "real" than "races", but "chair" is a useful construct. The only measure of the worth of a concept is how useful it is, not whether it is "real" or not. All words are social constructs, because words do not have objective definitions; their definitions are agreed socially. That does not mean words are not useful! I do not say words including "race" refer to real objects. Instead I say they are useful (or not useful).
Is "race" a useful concept? Yes, because it allows people to make accurate predictions. If I say someone is black, you can predict their ancestry is mostly from Sub-Saharan Africa. If I say someone is from the Sub-Saharan race, you can predict their appearance, and their likely susceptibility to sickle cell anaemia.
But how do we classify people into races? Where does one race stop and another one start? What about people of mixed race? The "racial purity" argument is sometimes used to denigrate the concept of race. The argument goes: even if a person can be half one race and half another, that implies that "pure" races exist. Either each parent was a "pure" member of one race, or had ancestors who were. All branches up one's family tree will eventually hit a pure ancestor, a member of a single race. Since this is not true, because the races have not existed forever because humans have not existed forever, and probably everyone has a tiny bit of DNA from all races anyway, thus, the argument goes, races do not exist.
This argument is misguided, because it sets up a foolish requirement for the concept of race, which it then knocks down. But "race" doesn't have to be pure to be a useful concept. "Species" is a useful concept, even though species hybrids are common in plants, and ring species exist. "Purity" supposes races have existed forever, sprung into existence is pure form, later to be intermingled. But of course they haven't, humanity hasn't existed forever. Races don't have to have existed forever for the concept to be useful. If you take a random sample of people from around the world, and genetically isolate them, after several generations that population will have become genetically homogenous. Hey presto, you have created a new race. That is pretty much how Ashkenazi Jews came about. To prevent races diverging, you need gene flow/immigration of about 2% of the population per generation. The actual figure. "The average number of migrants per generation between sub-Saharan Africa and Europe, over the past hundred thousand years or so, was 1.26." 1.26 individuals is far below 2% of the population.
It is not true that everyone has a little bit of DNA from every race. Given that you have far fewer slots in your genome than you have ancestors, you have plenty of ancestors from which you have not inherited any DNA. Even if one of your distant ancestors was from a different race, you are unlikely to have any DNA from that race. (Selection pressures will change this probability one way or the other.)
You have many more slots in your family tree than people have ever existed. If you go back 40 generations, you have a trillion slots in your family tree. But 1000 years ago, there were not a trillion people on Earth. Many slots are occupied by the same individual, and some individuals occupy many more slots than other individuals. A typical Englishman today is much more closely related to people living in England 1000 years ago than to people living in Sub-Saharan Africa 1000 years ago (or today).
The fact that ring species exist knocks down the complaint about the fuzziness of the races. Even though "species" or "race" are fuzzy concepts, they are still useful. People in North Africa have more Sub-Saharan DNA than people in Europe. A concept of race that could not deal with this, that required "purity", would not make accurate predictions. But a sensible concept of race has no problem with fuzzy borders. It simply says that genetic gradients will be greater in some areas than others. A physical border like the Sahara has produced a steeper genetic gradient between North Africa and Sub-Saharan Africa, than within Sub-Saharan Africa itself, where there is more gene flow and more homogeneity. It doesn't mean interbreeding is impossible, any more than interbreeding between species is impossible (though less common, less probable, with lower chance of success).
How many races are there? Are there subraces? This question is misguided. How many families are there? Are you a member of one family or several? Families can overlap, and a race is just "an extremely extended family", one that is "partly inbred", as Steve Sailer put it. Race is a useful concept, even though you are not able to say how many there are, or whether a group of people counts as one race or two. "Family" is a useful concept as well, despite having the same "shortcoming".
However, scientists do have a concept called a fixation index, of the genetic distance between two people. For a given arbitrary cutoff value, it will tell you whether two people are in the same race or not. So the number of races depends on the cutoff value you choose. This is not particularly relevant to making useful predictions, but it is somewhat relevant! For example, the fixation index between coyotes and wolves is 0.153. The fixation index between Europeans and Sub-Saharan Africans is 0.153. Sub-Saharan Africans are about as different from Europeans as wolves are from coyotes.
How do you tell what race someone is in? Clearly, when we talk about race, we are talking about ancestry. You can't just use appearance, because of convergent evolution. It is possible that two branches of humanity can end up with similar features. For example, Tibetans and Andeans are both adapted to high altitude, but they are not the same race. (The adaptations are different, with different genes.)
If I say someone is Sub-Saharan, or black, I mean they are descended from a population that lived there for a long time, with very little gene flow from other areas. Someone who has just moved to Africa does not become part of that race.
Isn't this circular? You are a member of a race because you are descended from people who lived there a long time; people who lived there a long time are the Sub-Saharan race. It doesn't matter if this is circular, because that is how concepts are bootstrapped. If I know your ancestry, I can predict your traits; if I know your traits, I can predict your ancestry. If I know your traits, I can predict your other traits.
Darwin called his book "the origin of species". What were the origin of species? Races! A population splits into two, with so little gene flow between them that they start to diverge genetically. After a time, they will be so different that we call them races. But they are still the same species -- they can still interbreed. The process could still be reversed: the populations could be brought back together, gene flow increased, and they would become one race again. But if the genetic isolation persists, after more time, they will diverge so much that interbreeding becomes very unlikely (though ligers and tigons are fertile). Now they are two species. With more time, they will diverge genetically still more, and interbreeding becomes totally impossible. They will forever be separate species.
Races are the origin of species. If races didn't exist, species could not exist. Species do exist, therefore races exist.
When people say "race isn't real", they prove too much. This argument is strictly correct, but it applies to all concepts. Concepts aren't "real", they are useful, they are mental tools. "Chairs" are no more "real" than "races", but "chair" is a useful construct. The only measure of the worth of a concept is how useful it is, not whether it is "real" or not. All words are social constructs, because words do not have objective definitions; their definitions are agreed socially. That does not mean words are not useful! I do not say words including "race" refer to real objects. Instead I say they are useful (or not useful).
Is "race" a useful concept? Yes, because it allows people to make accurate predictions. If I say someone is black, you can predict their ancestry is mostly from Sub-Saharan Africa. If I say someone is from the Sub-Saharan race, you can predict their appearance, and their likely susceptibility to sickle cell anaemia.
But how do we classify people into races? Where does one race stop and another one start? What about people of mixed race? The "racial purity" argument is sometimes used to denigrate the concept of race. The argument goes: even if a person can be half one race and half another, that implies that "pure" races exist. Either each parent was a "pure" member of one race, or had ancestors who were. All branches up one's family tree will eventually hit a pure ancestor, a member of a single race. Since this is not true, because the races have not existed forever because humans have not existed forever, and probably everyone has a tiny bit of DNA from all races anyway, thus, the argument goes, races do not exist.
This argument is misguided, because it sets up a foolish requirement for the concept of race, which it then knocks down. But "race" doesn't have to be pure to be a useful concept. "Species" is a useful concept, even though species hybrids are common in plants, and ring species exist. "Purity" supposes races have existed forever, sprung into existence is pure form, later to be intermingled. But of course they haven't, humanity hasn't existed forever. Races don't have to have existed forever for the concept to be useful. If you take a random sample of people from around the world, and genetically isolate them, after several generations that population will have become genetically homogenous. Hey presto, you have created a new race. That is pretty much how Ashkenazi Jews came about. To prevent races diverging, you need gene flow/immigration of about 2% of the population per generation. The actual figure. "The average number of migrants per generation between sub-Saharan Africa and Europe, over the past hundred thousand years or so, was 1.26." 1.26 individuals is far below 2% of the population.
It is not true that everyone has a little bit of DNA from every race. Given that you have far fewer slots in your genome than you have ancestors, you have plenty of ancestors from which you have not inherited any DNA. Even if one of your distant ancestors was from a different race, you are unlikely to have any DNA from that race. (Selection pressures will change this probability one way or the other.)
You have many more slots in your family tree than people have ever existed. If you go back 40 generations, you have a trillion slots in your family tree. But 1000 years ago, there were not a trillion people on Earth. Many slots are occupied by the same individual, and some individuals occupy many more slots than other individuals. A typical Englishman today is much more closely related to people living in England 1000 years ago than to people living in Sub-Saharan Africa 1000 years ago (or today).
The fact that ring species exist knocks down the complaint about the fuzziness of the races. Even though "species" or "race" are fuzzy concepts, they are still useful. People in North Africa have more Sub-Saharan DNA than people in Europe. A concept of race that could not deal with this, that required "purity", would not make accurate predictions. But a sensible concept of race has no problem with fuzzy borders. It simply says that genetic gradients will be greater in some areas than others. A physical border like the Sahara has produced a steeper genetic gradient between North Africa and Sub-Saharan Africa, than within Sub-Saharan Africa itself, where there is more gene flow and more homogeneity. It doesn't mean interbreeding is impossible, any more than interbreeding between species is impossible (though less common, less probable, with lower chance of success).
How many races are there? Are there subraces? This question is misguided. How many families are there? Are you a member of one family or several? Families can overlap, and a race is just "an extremely extended family", one that is "partly inbred", as Steve Sailer put it. Race is a useful concept, even though you are not able to say how many there are, or whether a group of people counts as one race or two. "Family" is a useful concept as well, despite having the same "shortcoming".
However, scientists do have a concept called a fixation index, of the genetic distance between two people. For a given arbitrary cutoff value, it will tell you whether two people are in the same race or not. So the number of races depends on the cutoff value you choose. This is not particularly relevant to making useful predictions, but it is somewhat relevant! For example, the fixation index between coyotes and wolves is 0.153. The fixation index between Europeans and Sub-Saharan Africans is 0.153. Sub-Saharan Africans are about as different from Europeans as wolves are from coyotes.
How do you tell what race someone is in? Clearly, when we talk about race, we are talking about ancestry. You can't just use appearance, because of convergent evolution. It is possible that two branches of humanity can end up with similar features. For example, Tibetans and Andeans are both adapted to high altitude, but they are not the same race. (The adaptations are different, with different genes.)
If I say someone is Sub-Saharan, or black, I mean they are descended from a population that lived there for a long time, with very little gene flow from other areas. Someone who has just moved to Africa does not become part of that race.
Isn't this circular? You are a member of a race because you are descended from people who lived there a long time; people who lived there a long time are the Sub-Saharan race. It doesn't matter if this is circular, because that is how concepts are bootstrapped. If I know your ancestry, I can predict your traits; if I know your traits, I can predict your ancestry. If I know your traits, I can predict your other traits.
Darwin called his book "the origin of species". What were the origin of species? Races! A population splits into two, with so little gene flow between them that they start to diverge genetically. After a time, they will be so different that we call them races. But they are still the same species -- they can still interbreed. The process could still be reversed: the populations could be brought back together, gene flow increased, and they would become one race again. But if the genetic isolation persists, after more time, they will diverge so much that interbreeding becomes very unlikely (though ligers and tigons are fertile). Now they are two species. With more time, they will diverge genetically still more, and interbreeding becomes totally impossible. They will forever be separate species.
Races are the origin of species. If races didn't exist, species could not exist. Species do exist, therefore races exist.
Friday 1 March 2019
Concepts are mental tools
Concepts are mental tools, they do not have independent reality. Do not ask if a concept is "real", ask if it is useful.
Definitions of words are not objective; words are tools for communicating with others. They are tools for altering the mental states of other people.
Similarly, concepts are not objective; they do not necessarily refer to concrete objects in the world. They are tools for understanding the world.
Freud had a model of the psyche as id, ego and superego. Is this "true"? You can't cut open a brain and point to them. Does the theory make useful predictions? They don't have to be right every time, just better than chance, until a better model comes along. I don't say "falsifiable" because predictions don't have to be right every time.
If I say the brain has a cerebellum, this isn't a theory which makes predictions. But it is still a useful concept. I can talk about cerebellums and people will know what I am referring to. This does not rely on "cerebellum" referring to a concrete object. Objects are abstractions built out of atoms.
If I have a piece of software, a "black box", you can interrogate it and gain an idea of its behaviour. You might start to develop a theory of how it works, using abstract concepts like "id" and "ego". These might even match the abstract concepts in the mind of the person who wrote the software, or the abstract concepts you might develop if you read the source code and tried to understand it.
However, if you can never look at the source code, there always remains the possibility that your predictions are falsified. That is, even if you appear to be able to make perfect predictions, you might be wrong in the future. Again, even imperfect predictions can be better than chance.
Reality is like the black box. Your abstractions are not real, they are prediction generators that might work most of the time but could always turn out to be wrong.
Definitions of words are not objective; words are tools for communicating with others. They are tools for altering the mental states of other people.
Similarly, concepts are not objective; they do not necessarily refer to concrete objects in the world. They are tools for understanding the world.
Freud had a model of the psyche as id, ego and superego. Is this "true"? You can't cut open a brain and point to them. Does the theory make useful predictions? They don't have to be right every time, just better than chance, until a better model comes along. I don't say "falsifiable" because predictions don't have to be right every time.
If I say the brain has a cerebellum, this isn't a theory which makes predictions. But it is still a useful concept. I can talk about cerebellums and people will know what I am referring to. This does not rely on "cerebellum" referring to a concrete object. Objects are abstractions built out of atoms.
If I have a piece of software, a "black box", you can interrogate it and gain an idea of its behaviour. You might start to develop a theory of how it works, using abstract concepts like "id" and "ego". These might even match the abstract concepts in the mind of the person who wrote the software, or the abstract concepts you might develop if you read the source code and tried to understand it.
However, if you can never look at the source code, there always remains the possibility that your predictions are falsified. That is, even if you appear to be able to make perfect predictions, you might be wrong in the future. Again, even imperfect predictions can be better than chance.
Reality is like the black box. Your abstractions are not real, they are prediction generators that might work most of the time but could always turn out to be wrong.
The Lindy effect
The Lindy effect refers to anything whose life expectancy increases equal to or faster than its age.
Typical companies last about 10 years: "the typical half-life of a publicly traded company is about a decade".
Kongo Gumi was a company founded in 578, and was still in operation when it was bought in 2006.
Laplace's rule of succession is a rule of thumb to generate a probability for something that hasn't ever happened. 0 is not a probability, so if the sun has risen a thousand times, one should estimate the probability of it not rising as 1/(n+1) = 1/1001.
One should expect long-lived companies to last longer. It is not just chance that they survived. But one's estimate of their life expectancy should not increase forever. The naive Lindy effect says a 1000-year-old company has a 50% chance of lasting another 1000 years. In reality, it is less than 50%. I would expect that the rate of increase in life expectancy to reduce, until life expectancy remains constant. Perhaps a 1000-year-old company can only be expected to live another 50 years. That's still much higher than a typical company!
Taleb on black swan positioning
Taleb:
Bonds are bad investments because the potential upside is limited (interest payments) compared to the high potential downside (the debtor defaults).
Equities are better: the downside is limited (you lose all your money), but the upside is unlimited.
The problem is that the upsides and downsides will probably be priced so their risk-weighted returns are the same. Still, there's something in it. Given a bond and an equity with the same expected return, take the equity.
Financial markets are anti-inductive
Many natural systems are inductive: they behave the same way tomorrow as they did yesterday. However, when you are up against an opponent in a game of strategy, your opponent reacts to you; you cannot assume they will behave the same way tomorrow. They will deliberately act differently, or add an element of randomness.
Financial markets are like an opponent. If you find a strategy that works, then other people will probably find it too, and then it will stop working.
Strategies that worked will stop working. Strategies that didn't work cannot be relied upon to work in future!
Financial markets are like an opponent. If you find a strategy that works, then other people will probably find it too, and then it will stop working.
Strategies that worked will stop working. Strategies that didn't work cannot be relied upon to work in future!
Taleb on evolution
Taleb points out that successful people must take risks, but that taking risks is no guarantee of success. Risk taking increases your variance: you might win big, or lose big. The winners might just have won by luck.
From the point of view of society, or evolution, this is no problem! Even if the winners win by luck, they still won! Settlers move to a new continent. Many die, but a few survive and thrive. This is good for society.
From the point of view of society, or evolution, this is no problem! Even if the winners win by luck, they still won! Settlers move to a new continent. Many die, but a few survive and thrive. This is good for society.
Epistemic versus instrumental rationality
Instrumental rationality is more important than epistemic rationality. It is more important to win than to be right. "Markets can stay irrational longer than you can stay solvent." Trivers showed that false beliefs can be adaptive.
However, instrumental and epistemic rationality do tend to be correlated.
However, instrumental and epistemic rationality do tend to be correlated.
Incentives matter
Many people don't learn without some reward or penalty. People with inconsistent preferences will probably modify them if you try to turn them into a money pump. But not always! E.g. gambling addicts.
Markets aren't magic. They need to be trained, by eliminating stupid participants. Correct odds in gambling were achieved by evolution, millennia before probability theory was invented in the 17th century. However, knowledge of probability did give people like John Law an edge in certain less well-established games.
Markets aren't magic. They need to be trained, by eliminating stupid participants. Correct odds in gambling were achieved by evolution, millennia before probability theory was invented in the 17th century. However, knowledge of probability did give people like John Law an edge in certain less well-established games.
Environment and conservatism
If you take an organism out of its natural environment, it usually dies pretty quickly. This includes humans: early settlers in New England relied on the native Squanto to show them how to fertilize the soil. Some homeless people would thrive if they were given some investment to get them back on their feet: in their "natural environment" of having a home and a job they thrive, but outside of it, they languish and cannot get back into it. Forcible ujamaa "villagization" in Tanzania (described by James C. Scott in "Seeing Like A State") can be conceptualised as ripping people out of their natural habitats, with fatal consequences.
Large changes to one's environment can be fatal. Voluntary, gradual changes are not. This is an argument for conservatism.
Large changes to one's environment can be fatal. Voluntary, gradual changes are not. This is an argument for conservatism.
Eusocial organisms
Eusocial organisms like a colony of ants are best viewed as a single organism. They share the same genes, and crucially the drones do not reproduce. The colony or hive reproduces.
But a single cod or zebra or human can't survive alone -- we survive in groups. As Jordan Peterson said, there is no such thing as "a" cod.
The difference between eusocial organisms and normal organisms is that eusocial organisms can't have conflicts between individuals.
But a single cod or zebra or human can't survive alone -- we survive in groups. As Jordan Peterson said, there is no such thing as "a" cod.
The difference between eusocial organisms and normal organisms is that eusocial organisms can't have conflicts between individuals.
Biology is destiny
Fools say "race is a social construct", but actually society is a racial construct.
Countries look the way they do because of their people. If you change the people, you change the country. A colony of beavers escaped from a zoo after generations in captivity -- they went straight back to building dams.
You could say that a society is an emergent property of its people. Emergence is where simple entities interact to produce complex things. In a sense the society is encoded in the DNA of its people, in the same way the beavers' dam is encoded in the DNA of the beavers. In the case of the beavers, chance has little impact. In the case of a complex society, with path dependency, it is possible that chance has more of an impact and the society would turn out differently if you started from scratch. But it's unlikely when you look at how peoples recreate their societies when they move around the world.
Countries look the way they do because of their people. If you change the people, you change the country. A colony of beavers escaped from a zoo after generations in captivity -- they went straight back to building dams.
You could say that a society is an emergent property of its people. Emergence is where simple entities interact to produce complex things. In a sense the society is encoded in the DNA of its people, in the same way the beavers' dam is encoded in the DNA of the beavers. In the case of the beavers, chance has little impact. In the case of a complex society, with path dependency, it is possible that chance has more of an impact and the society would turn out differently if you started from scratch. But it's unlikely when you look at how peoples recreate their societies when they move around the world.
Risk-free
Nothing is risk free. In finance, government bonds are often referred to as "risk-free", the "risk-free interest rate". This is false. Governments can choose to default, as happened with Russia in 1998. Even without formal default, a government can inflate their debt away: inflation risk.
Neither are government bonds necessarily the lowest interest rate available. In 2012, the yield on Greek government bonds was far higher than that of the Coca Cola Hellenic Bottling Company.
Neither are government bonds necessarily the lowest interest rate available. In 2012, the yield on Greek government bonds was far higher than that of the Coca Cola Hellenic Bottling Company.
Aesthetics
Aesthetics can be used to justify anything, even genocide. This is not an argument against aesthetics.
Businesses and immigration externalities
Businesses will generally be in favour of immigration. A business is not trying to increase GDP per capita. They will be happy with an increase in GDP, even at the cost of a decrease in GDP per capita, because this will increase their revenues and profits.
Businesses and their owners don't pay the external costs of immigration: more crime, disease, litter, car crashes, lower average IQ and therefore a lowering of the sophistication of the society (its ability to run complex systems like trains and power stations), and fewer inventions in the future. The business owners don't have to live near the newcomers.
And what about the people who just want to live near people like themselves? Diversity has a psychic cost, not paid by businesses.
Some immigrants are bad for society overall, but their costs and benefits fall on different people.
Businesses and their owners don't pay the external costs of immigration: more crime, disease, litter, car crashes, lower average IQ and therefore a lowering of the sophistication of the society (its ability to run complex systems like trains and power stations), and fewer inventions in the future. The business owners don't have to live near the newcomers.
And what about the people who just want to live near people like themselves? Diversity has a psychic cost, not paid by businesses.
Some immigrants are bad for society overall, but their costs and benefits fall on different people.
Identical twins commit murder
If one identical twin commits murder, but the police cannot prove which one, then legally both must go free. This is a mistake. The purpose of execution is to improve the gene pool. Frost and Harpending (2015) show that by executing "between 0.5 and 1.0% of all men of each generation... the homicide rate plummeted from the 14th century to the 20th."
The correct solution is to execute both brothers.
What about families? Immediate family share 50% of the murderer's genes. Should they be executed? If this is too small a connection, what should the threshold be. 100%? 75%?
(In reality, identical twins have different fingerprints and slightly different DNA.)
The correct solution is to execute both brothers.
What about families? Immediate family share 50% of the murderer's genes. Should they be executed? If this is too small a connection, what should the threshold be. 100%? 75%?
(In reality, identical twins have different fingerprints and slightly different DNA.)
Kant's categorical imperative
"Act only according to that maxim whereby you can at the same time will that it should become a universal law."
Kant's categorical imperative is wrong. There are plenty of things which it is acceptable to do, but which wouldn't work if everyone did it.
If I create a small bit of pollution, but I know that I am unusual and most people will not create the same type of pollution, then I can reasonably suppose that the total amount of that type of pollution will be below the amount that can be "absorbed by the earth".
A Catholic priest is celibate; does not have children. However, he would regard a world in which no one had children, to be sub-optimal. This does not show that he is behaving immorally by not having children. He can remain celibate because he knows that most people will not do so.
Kant's categorical imperative is wrong. There are plenty of things which it is acceptable to do, but which wouldn't work if everyone did it.
If I create a small bit of pollution, but I know that I am unusual and most people will not create the same type of pollution, then I can reasonably suppose that the total amount of that type of pollution will be below the amount that can be "absorbed by the earth".
A Catholic priest is celibate; does not have children. However, he would regard a world in which no one had children, to be sub-optimal. This does not show that he is behaving immorally by not having children. He can remain celibate because he knows that most people will not do so.
Travellers rely on sedentary people
People who travel around the world, whether working or on holiday, rely on people who never travel. I can go from place to place, renting rooms in buildings maintained by people who live in the area permanently. My life as a rootless cosmopolitan depends on sedentary people. This is another example of how I benefit from inequality. If everyone took up my lifestyle, it wouldn't work.
Military government
Military government solves the problem of how a sovcorp controls the military, by making them the same thing. Cryptographic weapons locks are unlikely to work.
Instead of shares being tradable, they are acquired by serving. Equivalently, one acquires citizenship and the vote, by serving in the military.
However, low-ranking soldiers should not be able to out-vote their superior officers, otherwise the military could not function. You could acquire more shares with rank and length of service, or perhaps a system could function where low-ranking soldiers appointed their officers, for a limited time with the threat of non-renewal, but then had to obey their orders.
Is there any reason why military government must lead to a non-liberal, sclerotic society like Perónist Argentina or Francoist Spain? Or a corrupt society where the military runs large companies, like China? These are certainly error modes. Military personnel do not typically understand liberal economics, so without tradable shares there is no guarantee that sovcorp managers will implement sensible policies. Perhaps 49% of the shares could be tradable.
With a literal military government, where the civil service and ministries are staffed solely by uniformed military, it will be more difficult to attract capable managers who are put off by military life. Or you could get a situation where managers enter the "military" and wear the uniform, but never serve in an actually military capacity.
Monday 25 February 2019
An argument against deontology
Morality can pertain to states-of-affairs (states of affairs can be moral or immoral, or one can be more moral than another), but insofar as we can do anything about it, morality pertains to thoughts and actions.
Consequentialism ranks actions based on how they affect states of affairs. Deontology ranks the actions in themselves, without regard for how they affect states of affairs. That is, it deontology tries to create rules for judging actions. It tries to put actions into classes. It tries, in short, to abstract actions.
This is why deontology fails. Abstractions do not exist, they are mental tools (concepts). It is not possible to come up with perfect abstractions -- the map is not the territory. Exceptions to deontological claims can always be found, or examples of where deontological moral rules conflict.
Consequentialism does not have these problems.
Consequentialism ranks actions based on how they affect states of affairs. Deontology ranks the actions in themselves, without regard for how they affect states of affairs. That is, it deontology tries to create rules for judging actions. It tries to put actions into classes. It tries, in short, to abstract actions.
This is why deontology fails. Abstractions do not exist, they are mental tools (concepts). It is not possible to come up with perfect abstractions -- the map is not the territory. Exceptions to deontological claims can always be found, or examples of where deontological moral rules conflict.
Consequentialism does not have these problems.
Rawls
Rawls' "original position"/"veil of ignorance" doesn't work.
The idea is that, since you don't know before you are born what your position in a society will be, you should want an equal society, to make the worse-case scenario as palatable as possible.
There are various problems with this. One is that "maximin" is not necessarily the correct strategy. You might be willing to risk poverty if you improve your expected outcome. Another is that you are not in fact behind a veil of ignorance, you do know what your position in society is. It's not clear why the idea of a veil of ignorance is supposed to motivate you. Rawls called his idea "a theory of justice" but he does not try to show that equality is just and therefore self-motivating. (Moldbug remarked that Rawls just took the word "justice" and slapped it on his idea, ignoring that "justice" already had a perfectly good meaning: pacta sunt servanda.
The chief problem with Rawls is that his theory is not a dynamic theory; he does not consider time. There is no acknowledgement that changing the level of inequality in a society will have other effects. It is true that in the short run, you can improve the position of the poorest in society by magically redistributing wealth. But this would likely make them and everyone else worse off in the long run, because incentives matter. The historical record is clear that the poorest people under capitalist, somewhat redistributive states, are better off than those in fully-redistributive communist states. Ask somebody behind the veil of ignorance whether they would like to live in a society that had just endured a century of communism, or in a society after a hundred years of technological innovation driven by entrepreneurs motivated by wealth. The answer is obvious. Rawls might as well ask whether you would rather live in 1800 or 2000. Rawls' veil of ignorance does not add anything to traditional arguments about the effects of enforced equality.
But there is another, less well known idea in "A theory of justice". In addition to trying to justify full equality, not just of money but also of other "primary" goods like social status and beauty (good luck redistributing that), Rawls also attempts to justify liberalism.
He argues that people have different "life plans", and if one type of society is selected, most people's life plans will go unfulfilled. However, liberalism supposedly gives everyone the maximum chance to satisfy their life plan.
Firstly, again, just because someone would agree to liberalism before a veil of ignorance, there is no reason for them to continue to go along with it after the veil is lifted. It is difficult to see Stalin being persuaded by this argument.
More crucially, it is not true that liberalism allows all life plans to be satisfied. Life plans conflict all the time. Kaczynski's desire to live in quiet countryside conflicts with someone else's desire to build a motorway. Many life plans rely on living in a society where everyone else shares that life plan -- and not in a liberal democracy!
Only egalitarian individualists could agree to Rawls' arguments. Muslims, the Amish, hunter-gatherers such as Amazon tribesmen or American indians, Mongol horsemen, Aztec priests: all want something different. Ancient Greeks and Romans thought the purpose of the state was to promote glory, not equality or individual life plans. Anyone who values anything above the condition of the poor wants something better.
The idea is that, since you don't know before you are born what your position in a society will be, you should want an equal society, to make the worse-case scenario as palatable as possible.
There are various problems with this. One is that "maximin" is not necessarily the correct strategy. You might be willing to risk poverty if you improve your expected outcome. Another is that you are not in fact behind a veil of ignorance, you do know what your position in society is. It's not clear why the idea of a veil of ignorance is supposed to motivate you. Rawls called his idea "a theory of justice" but he does not try to show that equality is just and therefore self-motivating. (Moldbug remarked that Rawls just took the word "justice" and slapped it on his idea, ignoring that "justice" already had a perfectly good meaning: pacta sunt servanda.
The chief problem with Rawls is that his theory is not a dynamic theory; he does not consider time. There is no acknowledgement that changing the level of inequality in a society will have other effects. It is true that in the short run, you can improve the position of the poorest in society by magically redistributing wealth. But this would likely make them and everyone else worse off in the long run, because incentives matter. The historical record is clear that the poorest people under capitalist, somewhat redistributive states, are better off than those in fully-redistributive communist states. Ask somebody behind the veil of ignorance whether they would like to live in a society that had just endured a century of communism, or in a society after a hundred years of technological innovation driven by entrepreneurs motivated by wealth. The answer is obvious. Rawls might as well ask whether you would rather live in 1800 or 2000. Rawls' veil of ignorance does not add anything to traditional arguments about the effects of enforced equality.
But there is another, less well known idea in "A theory of justice". In addition to trying to justify full equality, not just of money but also of other "primary" goods like social status and beauty (good luck redistributing that), Rawls also attempts to justify liberalism.
He argues that people have different "life plans", and if one type of society is selected, most people's life plans will go unfulfilled. However, liberalism supposedly gives everyone the maximum chance to satisfy their life plan.
Firstly, again, just because someone would agree to liberalism before a veil of ignorance, there is no reason for them to continue to go along with it after the veil is lifted. It is difficult to see Stalin being persuaded by this argument.
More crucially, it is not true that liberalism allows all life plans to be satisfied. Life plans conflict all the time. Kaczynski's desire to live in quiet countryside conflicts with someone else's desire to build a motorway. Many life plans rely on living in a society where everyone else shares that life plan -- and not in a liberal democracy!
Only egalitarian individualists could agree to Rawls' arguments. Muslims, the Amish, hunter-gatherers such as Amazon tribesmen or American indians, Mongol horsemen, Aztec priests: all want something different. Ancient Greeks and Romans thought the purpose of the state was to promote glory, not equality or individual life plans. Anyone who values anything above the condition of the poor wants something better.
Very low probabilities
Humans are bad at dealing with very high and very low probabilities.
- Some are not computable. Bank runs can be set off by sunspots.
- The probability can only be estimated (underestimated!) from historical data.
- Pascal's mugging
- You need exponentially more evidence to get probabilities closer to 1 or 0.
- Probabilities cannot be zero or one, because then you cannot change your mind, as per Bayes' Theorem
Taleb on investment strategies and time horizons
Taleb points out that investment strategies can appear to work for a long time, but eventually fail. He also says that whatever works cannot be stupid.
There is no time horizon after which we can say that a strategy has worked. However, we can say for certain if a strategy has failed, and you lose all your money. A species can survive for a million years -- it appears to be successful -- then it goes extinct.
There is no time horizon after which we can say that a strategy has worked. However, we can say for certain if a strategy has failed, and you lose all your money. A species can survive for a million years -- it appears to be successful -- then it goes extinct.
Unambiguous forecasting
FiveThirtyEight.com is a website which aggregates political polls. It has a reputation as being more successful in its political predictions than other pollsters. How deserved is this reputation?
In the 2016 United States presidential election, the markets thought Trump had about a 20% chance of winning. FTE thought he had a 29% chance of winning, which is better than the market (Trump did win). Other pollsters were giving him a 15% chance. So if we trusted FTE, we would have bet on Trump and would make money over the long run, making similar bets.
But FTE does not make bets! Your performance at prediction depends not only on whether your odds are better calibrated than your opponents, but also on how much of your wealth you allocate to each bet. Bets function as a second-order expression of the error bars you assign to your odds. For example, if the market probability is 20%, and your odds are 29% plus or minus 10 percentage points, you might not make the bet.
We cannot judge the performance of FTE because they are not allocating bets, so we don't know how their confidence varies across their predictions.
If you make a bet, it forces you to make the question sufficiently unambiguous, enough so that it can be judged by a third party. Most predictions are not sufficiently unambiguous, and people claim undeserved victory afterwards.
That is not to say that predictions are worthless if criteria for success are too ambiguous to bet on. But one shouldn't crow about them.
In the 2016 United States presidential election, the markets thought Trump had about a 20% chance of winning. FTE thought he had a 29% chance of winning, which is better than the market (Trump did win). Other pollsters were giving him a 15% chance. So if we trusted FTE, we would have bet on Trump and would make money over the long run, making similar bets.
But FTE does not make bets! Your performance at prediction depends not only on whether your odds are better calibrated than your opponents, but also on how much of your wealth you allocate to each bet. Bets function as a second-order expression of the error bars you assign to your odds. For example, if the market probability is 20%, and your odds are 29% plus or minus 10 percentage points, you might not make the bet.
We cannot judge the performance of FTE because they are not allocating bets, so we don't know how their confidence varies across their predictions.
If you make a bet, it forces you to make the question sufficiently unambiguous, enough so that it can be judged by a third party. Most predictions are not sufficiently unambiguous, and people claim undeserved victory afterwards.
That is not to say that predictions are worthless if criteria for success are too ambiguous to bet on. But one shouldn't crow about them.
Competing monies
What is the probability of the price of gold falling to less than $100/oz before the year 2100? (Currently over $1000.) Approximately 0%?
It could be replaced by bitcoin, though it hasn't been replaced by any other currency yet.
What is the probability of the price of bitcoin falling to less than $100 before the year 2100? (Currently over $3000.) More than 1%?
It could be replaced by another cryptocurrency.
Demand for stores of value is distributed over various commodities. If demand remains constant, one currency's gain is another's loss.
It could be replaced by bitcoin, though it hasn't been replaced by any other currency yet.
What is the probability of the price of bitcoin falling to less than $100 before the year 2100? (Currently over $3000.) More than 1%?
It could be replaced by another cryptocurrency.
Demand for stores of value is distributed over various commodities. If demand remains constant, one currency's gain is another's loss.
Bubble dynamics
In a bubble, prices rise gradually, but they can crash suddenly. The stock market can fall 30% in one day, but it will never rise 30% in one day, though it might in one week. The reason people were so terrified about the 2010 Flash Crash was because it could have turned into a real crash, kicking off a depression.
Land and bubbleicity
Land exhibits bubbleicity. If the interest rate is 5%, the (risk-adjusted) return on a piece of land is unlikely to rise much above that, because entrepreneurs will bid up the price of the land, lowering the return. However, it is possible for the return on land to fall below the interest rate, far below it, as people bid up the price of land even further. Some property in London has a return of 5%, other property only 1%. People are over-paying for land. Why? Because they expect to be able to sell it to someone else for at least the same price. It exhibits bubbleicity, a permanent bubble. It is being used as a store of value.
The price of money
There is no fundamental way to value money. Money is in a permanent state of bubble, and there is no fundamental way to value something in a bubble.
Therefore, there is no fundamental way to value an exchange rate. All you have are historical prices. The only reason the health of a country's economy affects the price of its national currency is because people expect it to, but it doesn't have to.
Imagine a government issues a new currency: one million blank pieces of green paper. These will find a market value. If the same government issues another currency, one million blank pieces of blue paper, these will also find a market price. They are effectively different currencies. Just because they are issued by the same government, and the same quantity, there is no reason why they should reach the same price. People might start using one for small change, and one for higher-value transactions.
Imagine instead that the government issues green and blue paper as above, but prints the number "10" on the greens and "1" on the blues. Now we might expect them to trade at a ratio of precisely 10 to 1, and they are effectively one currency.
Therefore, there is no fundamental way to value an exchange rate. All you have are historical prices. The only reason the health of a country's economy affects the price of its national currency is because people expect it to, but it doesn't have to.
Imagine a government issues a new currency: one million blank pieces of green paper. These will find a market value. If the same government issues another currency, one million blank pieces of blue paper, these will also find a market price. They are effectively different currencies. Just because they are issued by the same government, and the same quantity, there is no reason why they should reach the same price. People might start using one for small change, and one for higher-value transactions.
Imagine instead that the government issues green and blue paper as above, but prints the number "10" on the greens and "1" on the blues. Now we might expect them to trade at a ratio of precisely 10 to 1, and they are effectively one currency.
Fundamental versus technical analysis
Fundamental analysis works. Technical analysis doesn't.
People make money by examining corporate accounts and having a view on future demand, then buying companies and commodities they think are undervalued. No one can consistently make money if all they know are historical market prices, and no one has gotten really rich doing so. You can get somewhat rich by luck, but the richest traders are nowhere near as rich as Warren Buffett.
(The momentum strategy does appear to work, but its risk-weighted returns is not as good as fundamental analysis, and I believe it conceals hidden risks. It cannot work in the long run, which is to say, it does not work. The occasional losses must wipe out all the gains.)
But how do we value something if we believe it is in a bubble? There is no way to do so, and fundamental investors will stay out. Bubble traders (relying on more than just technical analysis) can try to ride the bubble, though they also are the bubble and can get burned.
The problem for fundamental analysts is when the stock market as a whole is in a bubble. And this is almost always the case! The stock market exhibits bubbleicity. Commodities like oil exhibit bubbleicity. In addition to big bubbles, there are small, constant bubbles. Passive investors reinvest their dividends and to a certain extent just bid up prices. These small bubbles don't have to pop! Passive investors sell their investments when they retire, but these are bought by new investors, potentially sustaining the bubble indefinitely. It's just the same as with gold: old people sell gold to young people, and the bubble stays inflated. The gold price can stay high permanently.
A fundamental analyst cannot just short the stock market if he thinks the whole thing is overvalued, because it can stay overvalued indefinitely and he will lose. And what else can he do with his money?
People make money by examining corporate accounts and having a view on future demand, then buying companies and commodities they think are undervalued. No one can consistently make money if all they know are historical market prices, and no one has gotten really rich doing so. You can get somewhat rich by luck, but the richest traders are nowhere near as rich as Warren Buffett.
(The momentum strategy does appear to work, but its risk-weighted returns is not as good as fundamental analysis, and I believe it conceals hidden risks. It cannot work in the long run, which is to say, it does not work. The occasional losses must wipe out all the gains.)
But how do we value something if we believe it is in a bubble? There is no way to do so, and fundamental investors will stay out. Bubble traders (relying on more than just technical analysis) can try to ride the bubble, though they also are the bubble and can get burned.
The problem for fundamental analysts is when the stock market as a whole is in a bubble. And this is almost always the case! The stock market exhibits bubbleicity. Commodities like oil exhibit bubbleicity. In addition to big bubbles, there are small, constant bubbles. Passive investors reinvest their dividends and to a certain extent just bid up prices. These small bubbles don't have to pop! Passive investors sell their investments when they retire, but these are bought by new investors, potentially sustaining the bubble indefinitely. It's just the same as with gold: old people sell gold to young people, and the bubble stays inflated. The gold price can stay high permanently.
A fundamental analyst cannot just short the stock market if he thinks the whole thing is overvalued, because it can stay overvalued indefinitely and he will lose. And what else can he do with his money?
Saturday 23 February 2019
Bubbleicity
Moldbug calls money the bubble which doesn't pop. It is a bubble because nobody values it for its own sake, people only purchase it because they intend to sell it to someone else. (Unlike a retailer, who purchases things he doesn't intend to use, but sells them to people who do intend to use them.) Or some people do value it for its own sake, but the market price is far above what it would be if only those people were purchasing it. (For example, gold, which does have uses in electronics and medicine. It is useful as jewellery, but historically it is desired as jewellery because it is money.)
Money bubbles can pop. Sometimes a particular currency will "de-monetise". But they don't have to. There is no reason why a bubble can't keep going indefinitely, with the price levelling off well above the use-value.
The art bubble has been going for hundreds of years with no expectation of popping. The Mona Lisa is a scarce collectible. Its market value is well above that of identical copies, even though identical copies have identical use-value.
I call this "bubbleicity". Money has bubbleicity. Famous artworks have bubbleicity.
The cost of producing the artwork sets the floor price (which could be zero). The scarcity of its provenance can push the price above that. Or to look at it the other way around, the scarcity of gold sets the floor price of jewellery, and then there is a small premium for the design and workmanship (which could be zero).
People sometimes argue whether money is valued because it is a medium of exchange, or because it is a store of value. But you can't have one without the other. You can't have a medium of exchange unless it can store value across time. And you can't have a store of value unless you can exchange it at a future date.
In practice, people may use several commodities as money. They might keep gold in their vaults, for big transactions, and copper in their purse, for small transactions. But that doesn't mean one is the store of value and one is the medium of exchange. They are both stores of value and both media of exchange.
Money bubbles can pop. Sometimes a particular currency will "de-monetise". But they don't have to. There is no reason why a bubble can't keep going indefinitely, with the price levelling off well above the use-value.
The art bubble has been going for hundreds of years with no expectation of popping. The Mona Lisa is a scarce collectible. Its market value is well above that of identical copies, even though identical copies have identical use-value.
I call this "bubbleicity". Money has bubbleicity. Famous artworks have bubbleicity.
The cost of producing the artwork sets the floor price (which could be zero). The scarcity of its provenance can push the price above that. Or to look at it the other way around, the scarcity of gold sets the floor price of jewellery, and then there is a small premium for the design and workmanship (which could be zero).
People sometimes argue whether money is valued because it is a medium of exchange, or because it is a store of value. But you can't have one without the other. You can't have a medium of exchange unless it can store value across time. And you can't have a store of value unless you can exchange it at a future date.
In practice, people may use several commodities as money. They might keep gold in their vaults, for big transactions, and copper in their purse, for small transactions. But that doesn't mean one is the store of value and one is the medium of exchange. They are both stores of value and both media of exchange.
Subscribe to:
Posts (Atom)